Food insecurity and rising food prices in Asia

Food insecurity hits the poor hard—despite the possible gains accruing to food producers. This is because a large share of the poor’s household budget is allocated to food—its share is inversely related to income (Table 3.1). Following the 2008 food and energy crises, the future of Asia’s food security was particularly questioned. The outlook is

Table 3.1: Food Budget Share in Total Household Consumption Expenditure (%)

Income decile Bangladesh India-Rural India-Urban Indonesia-Rural Indonesia-Urban Thailand Cambodia

1 69 62 59 69 65 54 70

2 68 61 56 68 62 52 69

3 66 60 53 67 61 50 68

4 64 59 51 67 59 47 67

5 63 58 49 66 57 45 65

6 61 57 46 65 55 42 64

7 59 56 44 65 54 39 62

8 56 54 41 64 52 35 60

9 51 51 37 62 49 31 57

10 40 43 29 56 41 24 49

Source: ADB estimates using 2010/11 household survey data.

increasingly worrisome as demand and supply waver due to the effects of climate change, unprecedented urbanization, land degradation, water shortages and population growth across the region.

Food supply has become a major concern, not solely due to climate change. Unprecedented urbanization consumes large tracts of often fertile land—across expanding city boundaries, in suburban and industrial developments, and due to construction of roads and other infrastructure. Emigration of capable, young and better educated labor from rural farms also affects supply. In addition, farming land has been degraded through erosion, pollution, nutrition depletion and salinization (ADB 2011b). Meanwhile, the increasing use of ethanol as a substitute for oil decreases the global supply of grain and sugar.

Finally, water shortages are a growing threat to food production across Asia. By 2030, developing Asia may face a 40% shortfall of water supply (ADB 2008, 2012a). These will all place tremendous pressure on food supply without major breakthroughs in farming technology.

The other side of the ledger sees demand for food continuing to rise. From now till 2030, developing Asia must feed an additional 480 million people as its population is projected to grow—from 3.86 billion in 2014 to 4.34 billion in 2030 (United Nations 2014a).

At the same time, rapid economic growth brings higher living standards, particularly in emerging economies like India and the PRC. These imply a dramatic increase in demand for food and substantial change in dietary preferences. Consumption of non-staple food such as meat and dairy products requires more land and other inputs, often including grains and pulses that could otherwise go directly toward human consumption.

As a consequence, keeping food costs low is difficult. In fact, fast rising food prices have been a global phenomenon since the late 1960s, and particularly since the mid-1980s (Figure 3.1). In Asia, despite of some variations in trends, the food CPI tends to increase faster than the general CPI for most countries in most years, both before and after the 2008 food crisis (Figure 3.2). For Cambodia and the Philippines, for example, food CPI dropped

Source: Food and Agriculture Organization of the United Nations. FAOSTAT. http://faostat.fao.org/ (accessed 25 May 2014).

Figure 3.1: Global Food Price Index

35 60 85 110 135 160 185 210 235

1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2002–2004=100

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considerably in 2008 and in subsequent years. Heavy government intervention through export bans, food price controls and price subsidies for rice or wheat likely played a role. But such interventions may not be sustainable and cannot alter the long-term trend of rising food insecurity in Asia.

It is not entirely surprising that food prices reached crisis levels in 2008, when both structural and cyclical factors combined. Structural factors included a depletion of world stocks of rice and other

cereals, while cyclical factors came by way of weather (floods or drought) and financial instability, among others. High oil prices also contributed (Baffes and Dennis 2013).

Rising food prices have important distributional effects. Net consumers—especially the urban poor—

lose, while net producers often gain. However, those likely to benefit most are large farmers. They are relatively prosperous to begin with. ADB (2008) found that every 10% increase in food prices boosts

Source: Food and Agriculture Organization of the United Nations. FAOSTAT. http://faostat.fao.org/ (accessed 25 May 2014); ADB. Statistical Database System Online. https://sdbs.adb.org/sdbs/index.jsp (accessed 28 May 2014).

Figure 3.2: General Consumer Price Index (CPI) and Food CPI: Selected Asian Economies

Price index using 2005 as a benchmarkPrice index using 2005 as a benchmarkPrice index using 2005 as a benchmark

2000 2002 2004 2006 2008 2010 2012 1.0

1.2 1.4 1.6

China, People’s Rep. of

2000 2002 2004 2006 2008 2010 2012 0.8

2000 2002 2004 2006 2008 2010 2012 0.8

1.2 1.6 2.0

Nepal

2000 2002 2004 2006 2008 2010 2012 0.6

2005 2006 2007 2008 2009 2010 2011 2012 1.0

2000 2002 2004 2006 2008 2010 0.8

2000 2002 2004 2006 2008 2010 2012 0.8

2000 2002 2004 2006 2008 2010 2012 0.8

2000 2002 2004 2006 2008 2010 2012 1.0

the Gini coefficient¹⁴ by 0.6 of a percentage point for the Philippines and 0.4 percentage point for Pakistan.

This increase also lowers real per capita expenditure in the Philippines and Pakistan by 4.2% and 4.8%

respectively. More importantly, and as expected, rising food prices reduce real per capita expenditure of the poorest 10% of the population more than that of the richest 10% in both countries.

Also, the majority of poor households tend to allocate a much higher share of their consumption

14 The Gini coefficient, a measure of inequality, ranges from zero to 1—

zero indicating complete equality with 1 denoting perfect inequality where one person holds all the income.

expenditures to food during periods of price escalation (Figure 3.3). From 2007 to 2010,¹⁵ the distribution of the share of food in the total consumption budget shifted to the right in rural Thailand and Viet Nam—

meaning the majority of rural households had to allocate a much higher share of their consumption expenditures to food. The effect of the 2008 food crisis was stronger in Viet Nam, where the food share increased to about 80% for most households, while it rose to above 60% in Thailand.

15 Data for 2008 and 2009 are unavailable.

Source: Waibel and Hohfeld (2014).

Figure 3.3: Food Crisis and Household Food Budget Share

0 50 100 150

Frequency

.2 .4 .6 .8 1

Share of Food in Total Consumption

0 50 100 150 200

Frequency

.2 .4 .6 .8 1

Share of Food in Total Consumption

Viet Nam, 2007 Viet Nam, 2010

Thailand, 2007 Thailand, 2010

0 50 100 150

Frequency

0 .2 .4 .6 .8 1

Share of Food in Total Consumption

0 50 100 150 200

Frequency

0 .2 .4 .6 .8 1

Share of Food in Total Consumption

16 Key Indicators for Asia and the Pacific 2014

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