Food price inflation plunges 6.94 million more Pakistanis to poverty trap; Pushes additional 64 million people in Asia into extreme poverty: ADB

Soaring food prices have plunged 6.94 million more people in Pakistan into the poverty trap, based on the $1.25 a day poverty line, as food inflation reached double digits in the bracket of 10-20% food prices hike, with 13.1% increase in price of rice and 10% in wheat during current fiscal year.

A report ‘Global Food Price Inflation and Developing Asia’ published on Wednesday by the Asian Development Bank (ADB) says global food prices, which posted record increases in the first two months of 2011, are again threatening to push millions of people in developing Asia into extreme poverty.

Looking at impacts of food price hike on poverty, the report calculates that with 10% food price hike, 2.2% of more Pakistanis (3.47 million in number) plunged into poverty trap while with 20% food price increase, this number rose to 4.5% (6.94 million). India and Bangladesh are having even more impact of food price increase on their poverty numbers with India 2.9% rise and Bangladesh 2.5% rise with 10% food price inflation. Nepal and Sri Lanka stand better with 2% and 1.2% increase in number of poor people respectively with 10% food price hike.

While going through the report, INFN finds that since food carries large weight in consumer price index (CPI), food price inflation is stirring up general inflation and thus effecting prices of almost all consumer items. Bangladesh, India, and Sri Lanka are facing this situation. The share of food weight in CPI in Pakistan is 40.34% while it is 58.84% in Bangladesh, 46.19% in India and 45.50% in Sri Lanka.

UN Food and Agriculture Organization (FAO) in its previous report released in 2010 has already warned that Pakistan is among those countries that will face severe localized food insecurity due to social and political unrest and lingering effects of floods.

The present report says that fast and persistent increases in the cost of many Asian food staples since the middle of last year, coupled with crude oil reaching a 31-month high in March, are a serious setback for the region which has rebounded strongly from the global economic crisis.

Domestic food inflation in many regional economies in Asia has averaged 10% in early 2011. The ADB study finds that a 10% rise in domestic food prices in developing Asia, home to 3.3 billion people, could push an additional 64 million people into extreme poverty based on the $1.25 a day poverty line.

"For poor families in developing Asia, who already spend more than 60% of their income on food, higher food prices further reduce their ability to pay for medical care and their children's education," said ADB Chief Economist Changyong Rhee. "Left unchecked, the food crisis will badly undermine recent gains in poverty reduction made in Asia."

The report adds that if the global food and oil price hikes seen in early 2011 persist for the remainder of the year, economic growth in the region could be reduced by up to 1.5 percentage points.

The report notes that production shortfalls caused by bad weather along with the weak US dollar, high oil prices and subsequent export bans by several key food producing countries have caused much of the upward global price pressure since last June, with double digit increases seen in the price of wheat, corn, sugar, edible oils, dairy products and meat. Rice prices are likely to continue their uptrend as the effects of La Niña persist, prompting consumers to seek less costly and less nutritious substitutes.

"To avert this looming crisis it is important for countries to refrain from imposing export bans on food items, while strengthening social safety nets," said Dr. Rhee. "Efforts to stabilize food production should take center stage, with greater investments in agricultural infrastructure to increase crop production and expand storage facilities, to better ensure grain produce is not wasted."

The report says there is also a need to calm speculative activities in food markets. It recommends enhanced market integration, and the elimination of policy distortions that create hurdles in transferring food from surplus to deficit regions.