I recently started a small project to look at the impact of rising food prices to poverty incidence in Indonesia. I found the major food crisis in 2007-2008, and to a lesser extend in 2010, particularly disturbing. I am somewhat convinced that this could be the beginning of recurring future food crisis.
During this period, staple food prices in most countries rose significantly. From 2006 to 2008, the average prices for cereals increased by more than 100 percent in emerging economies; 217% for rice, 136% for wheat, 125% for maize and 107% for soybeans (Obayelu, 2011).
In 2010, the international prices for these cereals also increased by similar magnitude; the World Bank Food Price Watch index rose to nearly 2008 level in February 2011. It means, we were so close to experiencing double food crises in just four years.
Excessive increase in food prices has raised concern that people in low-income countries will be at higher risk of hunger and malnutrition. The same problem may be felt by majority of the poor in most middle-income countries like Indonesia, where social security system is not well established.
A study by Ivanic and Martin (2008) of the World Bank, estimates that the higher cost of food will result in 44 million people to become poor or poorer in all low-income countries.
Abbott (2009) fears that the poor in many low to middle-income countries, who spend large amount of money on basic foods, will suffer and hurt the most. He highlights the conclusion of the IMF that negative macroeconomic consequences of rising food prices will prevail; namely increased in inflation, lost of tariff and export revenue, deteriorating terms of trade and slowing down in economic growth.
Global Hunger Index 2011 of the International Food Policy Research Institute (IFPRI) also reveals an even darker picture. It asserts that the 2008 food crisis has generated social and political turmoil in many developing countries, in addition to economic difficulties and violent social unrest.
There is no agreement on the causes of this crisis. Mali, et al. (2012) suggests that food speculation and ethanol conversion is responsible for the food crisis.
Asian Development Bank (2008) asserts that the main causes for the price spike and food crisis lie in the structure and dis-functioning of the markets.It argues for the cyclical factors of food production, increasing demand in developing world and dynamic of global commodity markets.
What seems to be agreed is that many countries will have to deal with increasing trend of food prices beyond 2008 or 2010. The impact on poverty is the most pressing issue, as higher food prices may create a set back in poverty reduction program by many countries. Indonesia is no exception.
As an emerging economy with population of 240 million, Indonesia’s effort to reduce poverty rate will be at risk of failing. It has been successfully doing so by cutting poverty incidence from 18.2% in 2002 to 13.3% in 2010 (World Bank Data, accessed February 2012).
During this period, Indonesia experienced one set back where poverty level of 16% in 2005 increased to 17.8% in 2006, although it declines again afterwards. The link between this set back and rising food prices is obvious at the outset.
There is a need to carefully identify all possible causes and effects of the rising food prices for Indonesia from 2008 to recent one. While the prices hike in this period are milestones for this kind of undertaking, overall trends in global food prices from 2000, or even earlier, should be thoroughly considered.
The research or analysis should also look at Indonesia’s past economic policies, including structural transformation, food subsidy, rice self-sufficiency and even oil policy.
The usual response of the Indonesian government, notably stabilization policy, to contain rising food prices also plays a role. Indonesia is rather known to rely on food stabilization policy, especially on rice. This may even take the analysis into political realm, especially around the key role of Bulog and DPR in this labyrinth.
Seems like a long but exciting journey for my little research!***
Originally published on luqyantamanni.wordpress.com, March 10, 2012: view original.
