Inflation Tough to Digest for Asia as Food Costs Soar From Pork to Onions
Asian cuisine may be too much of a good thing for some of the region’s central banks as policy makers grapple with the challenge of responding to spikes in the cost of staples from rice and pork to onions and chilies.
Pork prices jumped 57 percent in June in China, leading Premier Wen Jiabao to vow to curb inflation even as growth slows. India had to buy onions from arch-rival Pakistan this year for curries and Indonesia told spice lovers to grow their own chili as shortages stoked prices. A wider variety of diet and greater purchasing power for non-food items leave wealthier nations less vulnerable to food-cost spikes.
Food makes up more than 30 percent of inflation indexes on average in Asia, compared with about 15 percent in Europe and less than 10 percent in the U.S., according to Rabobank Groep NV. The sensitivity of their economies to swings in meat and vegetable costs means emerging-market policy makers need to raise interest rates more to stem inflation when global agriculture prices soar.
“People can’t change their diets overnight,” said Song Seng Wun, an economist at CIMB Research Pte in Singapore who has analyzed Asian economies for more than two decades. “All monetary policy can do is to try to contain what is perhaps a supply disruption issue from broadening to the wider economy.”
Rice, the staple food for about half of the global population, has surged 70 percent in the past year according to futures traded on the Chicago Board of Trade. The export price of rice from Thailand, the world’s biggest exporter of the grain, has jumped 23 percent.
Share of Prices
Within Asia, home to 60 percent of the world population, food’s weighting in consumer-price indexes varies from about 45 percent in the Philippines and India, to more than 30 percent in China and about 10 percent in South Korea, Rabobank says.
“For low-income countries, food expenditures normally account for a larger share of the consumption basket,” said Yao Xianbin, director general for the Regional and Sustainable Development Department at the Asian Development Bank in Manila. “As countries get wealthier, food expenditure will account for a declining share of total expenditure.”
Outside of Asia, Mexico has also seen challenges from reliance on a relatively limited diet -- an increase in the cost of tortillas, a staple of the nation’s diet since the Maya ruled 1,000 years ago, in 2007 stoked a slump in Mexican bonds and the peso. President Felipe Calderon arranged a price freeze with tortilla makers and the central bank boosted rates into 2008 even as the global financial crisis took hold.
Companies to Buy
Higher food costs have benefited some Asian food companies. Bloomberg’s Asia Pacific Food Index of 50 stocks is up about 8 percent in 2011, while the MSCI AC Asia Pacific (MXAP) index is down 0.7 percent. Pork prices have boosted producers such as Henan Chuying Agro-pastoral Co., which has risen 15 percent this year. Twelve of 13 analysts rate Henan, China-based Chuying a buy, data compiled by Bloomberg shows.
In China, the rise in pork prices made up more than a fifth of June’s overall inflation rate. An average Chinese will eat an estimated 38.8 kilograms of pork in 2011, compared with 9.6 kilograms of chicken and 4 kilograms of beef, according to the U.S. Department of Agriculture.
Inflation has breached the Chinese government’s 4 percent target for 2011 every month this year, with consumer prices rising 6.4 percent in June from a year earlier, the most in three years. The nation has raised lending rates five times since mid-October.
The nation should invest in research for hog producers to help steady costs, Shenggen Fan, director general of the Washington-based International Food Policy Research Institute, said in an e-mail.
World food prices held near a record in June as the cost of sugar, meat and dairy increased. An index of 55 food commodities rose to 233.8 points from 231.4 points in May, the United Nations’ Food and Agriculture Organization said July 7. The gauge climbed to an all-time high of 237.7 in February.
A fivefold jump in Indonesian chili prices last year made the spice costlier than beef, the Jakarta Globe reported in January. Indonesian’s Agriculture Minister Suswono said at the beginning of 2011 that the government will distribute chili seeds to 100,000 households, the paper said. Bank Indonesia, while trailing counterparts from Thailand to Malaysia this year, raised rates in February.
In India, where the price of onions has at times become an election issue, the central bank has raised rates 10 times since the start of 2010. The world’s second-biggest onion grower said in December it would buy the vegetable from abroad and banned exports after excess rainfall damaged crops and stoked prices.
About 42 percent of Indian households are vegetarian and rely on pulses -- edible seeds of leguminous plants -- for protein, according to a report submitted to the FAO by the International Food Policy Research Institute. The country accounts for 73 percent of the world’s production of tur dal, one of its staple seeds.
“Some part of food inflation is due to higher prices of staple pulses which are very specific to India,” said Shubhada Rao, chief economist at Mumbai-based Yes Bank Ltd. “It is very specific consumption and there is no adequate supply of these commodities in the global market.”
Indian food-price inflation quickened to a three-week high of 8.31 percent in the week ended July 2, before easing to 7.58 percent the following week. The nation’s benchmark wholesale- price index climbed 9.44 percent last month from a year earlier, after a 9.06 percent pace in May. Montek Singh Ahluwalia, an adviser to Prime Minister Manmohan Singh, said this week it will take “several months” to bring inflation to an acceptable level.
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