The Asian Development Bank echoes recent statements by the IMF and the United Nations urging countries to put more funds in the hands of the poor to buy food, instead of resorting to protectionist trade barriers

Asian governments are over-reacting to surging food prices by resorting to market-distorting export curbs; they should use fiscal measures to help the poor instead, says the Asian Development Bank (ADB).

World rice prices have surged, not only because stocks have hit their lowest levels in decades but also because of growing disposable incomes, high fuel prices driving up production costs, erratic weather, and stagnant yields, says Rajat Nag, ADB’s managing director general.

“The era of cheap food is over,” Nag said at a Singapore Foreign Correspondents Association function. “We want to temper what we think is a bit of an over-reaction. There is still enough supply.” The growing concern over rice supplies has reached hysterical levels in recent weeks as surging inflation prompted India and Vietnam to curb exports, hoping to tame prices at home -- while goading them higher abroad.”

“Banning exports is no different from hoarding at a national level,” Nag said.

The price of rice in Thailand, the world’s number one exporter, has more than doubled this year. The benchmark Thai 100% B grade white rice was quoted at an historic high of US$ 950 a tonne this week, up from US$ 383 earlier this year.

“We believe the situation in Asia is one marked by very high food prices and not supply shortages,” said Nag.

He added that direct help to the poor was preferable to raising interest rates to tackle the problem of rising prices. “It is an entitlement issue, the ability to buy. You have got to get support to the poor immediately. We’d rather that be done through direct fiscal stimulus than monetary policy,” he said.

The ADB’s comments echo recent statements by the International Monetary Fund and the United Nations urging countries to ensure more funds in the hands of the poor to buy food, instead of resorting to protectionist trade barriers.

Nag said food prices could ease from current levels because of cyclical factors but would settle at a relatively high level compared with levels seen in previous years.

Source: The Financial Express, April 22, 2008
              Reuters, April 22, 2008