ADB to Help Support Countries Meet Rising Food Costs (Update1)

05/03/2008

By Shamim Adam and Cherian Thomas


May 3 (Bloomberg) -- The Asian Development Bank is ready to provide fiscal support to help countries in Asia and the Pacific to meet the cost of higher food prices.

``Rising food and fuel prices have placed many governments in the region under significant pressure to put food on the table of the poor and vulnerable,'' ADB President Haruhiko Kuroda said at a briefing in Madrid. ``The ADB will provide immediate budgetary support to the hardest hit countries.''

Global food prices surged 57 percent in March from a year earlier, according to the United Nations. Asia's poorest countries including Bangladesh and Tajikistan have borne the brunt of the increases, Kuroda said, even as the price gains stoked social tensions in other parts of the world.

Vietnam and other rice-producing nations have curtailed exports to maintain supplies and cool local inflation, pushing up prices for buyers such as the Philippines, the world's biggest importer of the grain. Corn, wheat and soybean prices have all reached records this year too. Rice prices have more than doubled in the past year.

Thailand and Vietnam, the two nations that supply almost half of global rice exports, agreed ``in principle'' yesterday to set up a cartel to manage supplies amid near-record prices.

``The agriculture market should be market-driven,'' Kuroda said. ``Any kind of cartel isn't good for the exporters and the importers.''

Improve Productivity

Kuroda said countries should find ways to improve agricultural productivity in the long term to meet increasing consumer demand.

He didn't specify the amount the bank would lend to governments to offset the effect of higher food prices, adding that it would be ``sizeable.'' The ADB will lend $1 billion in each of 2008 and 2009 to develop irrigation and other rural infrastructure, the president said.

The World Bank expects the food price increases to trigger civil disturbances in 33 countries. Deadly demonstrations, such as those in Egypt, Haiti and Cameroon this year, aren't likely to occur in Asia, Singapore's Minister Mentor Lee Kuan Yew said today in an interview with Bloomberg Television.

``As long as governments can maintain food subsidies, I would see little risk of outright riots in Asia,'' said Frederic Neumann, an economist at HSBC Holdings Plc in Hong Kong. ``What's driving food prices right now is strong demand, rather than a disruption in supply.''

Targeted Subsidies

Kuroda said governments should be more selective in providing food subsidies to their people and target groups that are most vulnerable as prices aren't likely to return to previous lower levels.

``Many governments have provided general subsides, capped prices and banned exports to keep food-grain prices in check,'' Kuroda said. ``We believe targeted interventions are more effective to mitigate the immediate impact of rising food prices and fiscally more effective.''

The ADB was formed in 1966 to improve the welfare of people in the Asia and the Pacific. Two-thirds of the world's poor reside in the region, and about 600 million Asians survive on less than $1 a day.

The group comprises 67 member countries, both from within and outside of the region. The member nations meet in Madrid between May 3 and May 6.