Record high food prices are moving to the top of the agenda for many Asian policymakers as the prospect of higher inflation in 2011 poses a major threat to the region's strong revival from the global financial crisis.
The United Nations' food agency (FAO) said yesterday that food prices hit a record high last month, moving beyond the levels that prompted riots in 2008 in countries as far afield as Egypt, Cameroon and Haiti.
Food inflation in many Asian countries, including China and India, is already in double digits, raising fears that the price pressures could spread more broadly to other sectors and pose a threat to both economic and social stability as millions of Asians live in poverty.
Surging food prices have proved a trigger for social protests in the past, forcing governments to cave in to demands for action. They were a factor in the fall from power of Indonesia's long-term autocrat Suharto in 1998.
"Food price inflation could really go into double digits across the region and rise to such an extent that it undermines the purchasing power of households and as a result then slows consumer demand and overall economic growth," said Frederic Neumann, regional economist at HSBC in Hong Kong.
"And that's a problem for Asian economic growth. But really it's also a problem for the rest of the world because as the Asian consumer increasingly is helping to stabilise world demand, it's actually a challenge of wider global significance."
Indeed, South Korean authorities sounded the alarm today over rising commodity prices.
The finance ministry said it would make an effort "on all fronts" to curb price pressures, which it blamed on surging oil and commodities prices and the central bank signalled rate rises to come by saying it would keep inflation within its target zone of 2 per cent to 4 per cent.
Illustrating the food price pressures, wheat rose 47 per cent last year, buoyed by a series of weather events including drought in Russia and its Black Sea neighbours. US corn rose more than 50 per cent and US soybeans jumped 34 per cent.
There is little reason now to expect any let up in the price rallies, said Luke Matthews, a commodity strategist at Commonwealth Bank of Australia.
"We do believe that the structural drivers behind high food prices are likely to persist for some time," he said. "We have tight stocks in the corn and sugar markets, we have world wheat stocks susceptible to turn lower with forecasts of La Nina to persist for the next three months or so."
La Nina is a weather pattern that brings cooling temperatures, resulting in higher rainfall in Australia and parts of Southeast Asia.
Reuters