(photo credit: Courtesy)
Forget Egypt for a moment. Skip the water crisis in China. Look past angst on
the streets of Bangladesh. If you want to see how extreme the effects of surging
food prices are becoming, look to wealthy Japan.
So big are the increases
that economists are buzzing about them pushing deflationary Japan toward
inflation. Yes, rising costs for commodities such as wheat, corn and coffee
might do what trillions of dollars of central-bank liquidity
Yet the economic consequences of food prices pale in comparison
with the social ones. Nowhere could the fallout be greater than Asia, where a
critical mass of those living on less than $2 a day reside. It might have
major implications for Asia’s debt outlook. It may have even bigger ones for
leaders hoping to keep the peace and avoid mass protests.
difference a few months can make. Back in, say, October, the chatter was about
Asia’s invulnerability to Wall Street’s woes. Now, governments in Jakarta,
Manila and New Delhi are grappling with their own subprime crisis of
sorts. This one reflects a toxic mix of suboptimal food stocks, exploding
demand, wacky weather and zero interest rates around the globe.
hyperbole when Nouriel Roubini, the New York University economist who predicted
the US financial crisis, says surging food and energy costs are stoking
emerging-market inflation that’s serious enough to topple governments. Hosni
Mubarak over in Egypt can attest to that.SIDE EFFECTS
It’s important to
begin considering the side effects. The United Nations reckons countries spent
at least $1 trillion on food imports in 2010, with the poorest paying as much as
20 percent more than in 2009. These increases are just getting started.
In January, world food prices rose to another record on higher dairy, sugar and
This crisis might lead to another: debt. Expect Asian
leaders to increase subsidies sharply and cut import taxes. The fiscal
implications of these steps aren’t getting the attention they deserve. The same
is true of social-instability risks.
Events in Egypt are a graphic
example of how people living close to the edge can get motivated in a hurry to
demand change. Keeping that rage bottled in the age of Twitter, YouTube
and Facebook won’t be easy. Hence Roubini’s concerns about geopolitical
There’s an extreme irony in the timing of all this. It’s coming
as the world is becoming a heavier place. Obesity rates have almost doubled
since 1980, and almost 10% of humanity was seriously overweight in 2008,
according to the medical journal The Lancet.
People have never been fatter at
the same time when food prices have never been so high.FAT WORLD
Westernization of Asia’s diet is partly behind the rise in food costs. Rapid
growth, rising incomes, growing populations and urbanization are conspiring to
shift eating habits away from the staples of old toward livestock and dairy
The growing pains inherent in shifting consumption patterns
will be especially acute in this region. Unlike the food-price spike of 2008,
this one may be more secular than cyclical. Asia alone, for example, will have
another 140 million mouths to feed over the next four years. Add that to almost
3 billion people in the fast-growing region and you have a recipe for booming
China’s size and scope means it will be buying up ever-growing
chunks of the world’s food supply. As the yuan rises, so will China’s ability to
outbid everyone else. Increased trade tensions are inevitable, and it will show
the futility of food subsidies. Prices will rise as long as consumption does, so
it’s really a matter of pouring money down the drain.WEATHER’S WRATH
China also shows how changing weather will bump up against rising living
standards. Severe droughts are imperiling wheat crops in the world’s
largest producer. It’s creating shortages of drinking water both for
China’s 1.3 billion people and livestock. It’s a reminder that water is the next
Governments will be scouring the globe for it before
Rising food prices will complicate things for China’s central bank.
That goes, too, for India, Indonesia, the Philippines and even less developed
economies, such as Pakistan and Vietnam.
This will be an inconvenient
reality check for Asia bulls.
Take Indonesia, the fourth-most populous
nation and home to the biggest Muslim population. Food prices make it harder to
deliver higher living standards and narrow the gap between rich and poor. The
same goes for other countries in which population growth often outpaces gross
domestic product, such as the Philippines.
What’s killing households
surviving on a few dollars a day is price volatility. If you spend almost half
of your income to fill bellies, a 10% surge in cooking oil, wheat or chili
peppers is devastating. It’s hard enough to pay rent and handle health-care
costs today, never mind investing in education.
Governments need to get
busy softening the blow, even at the expense of rattling the folks at Standard
& Poor’s and Moody’s Investors Service. Otherwise, they will have a bigger
crisis on their hands than voters or investors alike can