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ADB announces emergency aid to cope with food crisis

ADB announces emergency aid to cope with food crisis
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First Published: Sun, May 04 2008. 03 43 PM IST
Updated: Sun, May 04 2008. 03 43 PM IST
Spain: The Asian Development Bank has announced emergency funding to help poor countries struggling with soaring food prices and warned these could keep rising and stifle economic growth in the region.
“The cheap food era may be over,” the bank’s President Haruhiko Kuroda told a news conference Saturday in Madrid , where the bank was holding its annual meeting.
The new aid will come in the form of soft loans for the governments of countries hardest hit by the global food crisis, such as Bangladesh.
Kuroda declined to give an overall figure for this expenditure, saying it would depend on requests governments make. He said the amount would be “sizable, but not enormous.”
Asia is home to two-thirds of the world’s poor, and nearly 1.7 billion people in the region live on $2 a day or less. Asia’s poor are particularly vulnerable to rising prices for staples such as rice because 60% of their spending goes toward food, and the figure rises to 75% if fuel costs are included, the bank said.
Kuroda said prices of rice, for instance, have nearly tripled in the past four months. Higher food costs mean higher inflation, which will reduce consumption, savings and investment. And if governments raise interest rates to control inflation, this could reduce demand and trigger an economic slowdown, the ADB said in a report.
It estimated a food price shock of 50% could cut real growth in Asian gross domestic product by 1.05 percentage points in 2008 and lower growth in 2009 as well.
Price controls could backfire
Many countries in the region are grappling with the crisis by imposing price controls or bans on food exports, but the bank says this can backfire by discouraging farmers from planting, thus reducing supplies and raising prices.
Food-specific aid is a better idea, Kuroda said. “We believe targeted interventions to protect food entitlements of the most vulnerable and poor are more effective to mitigate the immediate impact of rising food prices,” he said.
He also said the bank does not like Thailand’s idea of creating a rice-exporting cartel along the lines of OPEC, saying it is better to let market forces operate freely.
Soaring prices for staples have been stoked by higher fuel costs, unpredictable weather and greater demand from emerging powerhouses such as India and China.
Price of rice lowest in a decade
In Washington, U.S. President George W. Bush responded to the world’s rising food prices by asking Congress to approve $770 million in new global food aid for the coming fiscal year.
The bank says that while stocks of rice are the lowest they have been in a decade, the real problem is one of prices: the ability of poor people to buy food.
At this meeting, the bank will discuss how governments can help these people, including measures such as targeted aid, and over the long term with greater investment in agriculture and infrastructure like irrigation systems to increase production.
The bank wants developed countries to stop paying subsidies for production of biofuels, saying it makes staples more expensive. The meeting of the bank’s board begins in earnest on Monday and will bring together about 3,000 delegates, including finance ministers, academics and members of other multilateral development agencies.
Asia experienced healthy economic expansion of 8.7% last year and the bank forecasts it will sustain the robust 7.6% in 2008, excluding Japan, despite slowdowns in U.S. and elsewhere.
But for Asia, this has come with inflation now running at 5.1%, the highest in a decade and disregard for the environment amid go-go development and industrialization.
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First Published: Sun, May 04 2008. 03 43 PM IST