Bigger food crisis can be averted if Asia remembers not to panic
The world’s food problem is already severe as prices jump and protectionism flares but there is a good chance governments can stop it from getting way worse if they heed a lesson from the crisis in 2008: Don’t panic.
With a gauge of global prices already at a record following Russia’s invasion of Ukraine, a spate of nations have moved to curb exports in crops from wheat and sugar to cooking oils, exacerbating security risks for the rest of the world.
Bad weather is a concern, too. Still, whole wheat, corn and soy have soared, rice, a staple for more than 3 billion people, has so far been more stable.
If nations do not panic or start hoarding, they can stop the current crisis from becoming a rerun of the one in 2008, when rice prices soared to put the region’s food security at serious risk, according to Peter Timmer, Professor Emeritus at Harvard University, who has studied food security for decades.
“The 2008 lesson is: Do not spook the market,” says Timmer, who worked with Asian governments on their policy responses during that food crisis.
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“Be careful whatever you do on rice imports, on exports, on controls.”
The stakes could not be higher. Policy makers from the US to China are grappling with elevated inflation and slowing growth, while consumers face fast-rising costs of living and hunger is spreading.
Rice — about 90% of which is produced and consumed in Asia — is one of the most important crops. The 2008 crisis provides critical lessons as it underscores how government-imposed trade shocks can supercharge commodity prices.
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Rice’s surge back then was mainly because of bans on exports by major producers, notably India and Vietnam, due to domestic shortages and rising prices. That sparked panic buying in other countries, especially the Philippines, creating a ripple effect.
There are some similarities today. Rising energy prices, bad weather, and export bans contributed to the current upswing in food prices, just as they did back then, although the war in Ukraine adds a critical new dimension.
This year as agricultural prices jumped, several governments have moved to safeguard their own supplies: Indonesia restricted palm oil exports, Malaysia banned chicken flows, while India is limiting both wheat and sugar sales.
While there are concerns that rice could be next in line, given that it is absolutely critical to food security and political stability in Asia, there are also differences from 2008. Timmer says countries have both diversified their eating habits and built up huge buffer stockpiles in a bid to prevent price shocks. — Bloomberg
Photo: Bloomberg
Singapore’s Lee warns against isolating China after Biden visit
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Singapore’s Prime Minister Lee Hsien Loong urged that China remain integrated in the region, days after US President Joe Biden visited Asia for a series of summits that excluded the world’s second-largest economy.
“If US-China relations continue on this path, it will lead to further bifurcation of technology and splitting of supply chains or even worse unintended consequences,” Lee told an audience at the Future of Asia conference in Tokyo on May 26.
“It’s far better that China’s economy be integrated into the region, than for it to operate on its own by a different set of rules.”
Lee’s comments came after Biden paid his first visit to Asia as US President last week, holding summit talks in South Korea and Japan, and launching the Indo-Pacific Economic Framework, a grouping of 13 regional nations that includes Singapore.
While in Tokyo, Biden also attended the Quad summit, a format that includes Japan, Australia and India, and is seen as seeking to counterbalance China’s growing military clout in the region.
China protested against the staging of the events, and conducted joint air drills with Russia over the Sea of Japan while Biden was in Japan on May 24.
“In response to geopolitical tensions, countries have increasingly emphasised resilience and national security considerations over the economic gains from free trade and investment flows,” Lee says.
He warned against “reshoring” or “friend-shoring,” where countries build supply chains only with friends and allies.
“Such actions shut off avenues for regional growth and cooperation, deepen divisions between countries and may precipitate the very conflicts that we all hope to avoid,” he adds. — Bloomberg
China economy worse off in some ways than 2020, Premier Li says
China’s economy is in some respects faring worse than in 2020 when the pandemic first emerged, Premier Li Keqiang said, urging efforts to reduce a soaring unemployment rate.
“Economic indicators in China have fallen significantly, and difficulties in some aspects and to a certain extent are greater than when the epidemic hit us severely in 2020,” Li said on May 25, at an emergency meeting with thousands of representatives from local governments, state-owned companies and financial firms on stabilising the economy.
China’s full-year growth in 2020 was 2.2%. Li’s warnings add to expectations that Beijing may admit to missing its GDP target by a large margin this year as it keeps its focus on controlling Covid-19 infections through stringent controls. Economists surveyed by Bloomberg forecast gross domestic product will grow 4.5% this year, well below the government’s target of about 5.5%.
The premier called on officials to ensure unemployment falls and the economy “operates in a reasonable range” in the second quarter of this year, state media cited him as saying.
The nation’s surveyed jobless rate climbed to 6.1% in April, the highest since February 2020. Official data for April showed industrial output contracting for the first time since 2020.
“The economy is at its most grim moment since the second quarter of 2020,” says Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong. “The meeting was not intended to announce more policy measures, but instead to strengthen the consensus, flesh out the details and urge the implementation of policies to ensure all existing policies are taking effect.”
State media echoed Li’s plea on May 26 to boost growth. China has to take more strenuous effort to achieve this year’s economic growth target, and all work on stabilising employment and helping small businesses needs to accelerate, the Economic Daily said in a commentary on May 26. The newspaper is affiliated with the State Council, China’s cabinet.
Li’s emphasis on growth in the second quarter may be an “implicit acknowledgement” that the growth target set in early March will be “challenging,” Goldman Sachs Group economists write in a note. “Chinese policy makers are in greater urgency to support the economy after the very weak activity growth in April, anaemic recovery month-to-date in May, and continued increases in unemployment rates.”
The meeting is the latest in a series of calls by Li to support growth, which has come under enormous pressure since March from Covid-19 outbreaks and President Xi Jinping’s commitment to Covid Zero, requiring strict restrictions on activity where outbreaks occur.
Li said that economic data for the second quarter would be released “accurately” — amid some suspicion that official data could be massaged to appear less bad. The premier indicated that China will try to reduce the economic impact of its strict Covid-19 control policies, without specifying how that would be achieved.
“At the same time as controlling the epidemic, we must complete the task of economic development,” he says.
High-frequency data showed the economy remained in a deep slump in May as lockdowns continued to weigh on activity, according to Bloomberg’s aggregate index of eight indicators.
Beijing has never admitted to missing its annual growth target by a large margin since it began setting such goals more than three decades ago, with only one narrow miss previously reported in 1998.
Li outlined 33 support measures on May 23 to help businesses, including more than 140 billion yuan ($28 billion) of additional tax reductions including one for vehicle purchases. Local governments were told to spend most of the proceeds from 3.65 trillion yuan of bonds used mainly for infrastructure by the end of August.
Li said more detailed instructions on how to implement those policies would be issued this month. The central bank and banking regulator also held a meeting with major financial institutions on May 23 to urge them to boost loans.
State media reported following the meeting that some banks had been handed specific quotas requiring them to accelerate loan growth.— Bloomberg
