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8 ways to cushion food price shocks
Dionisia Tabureguci
It’s a mix of eight tough policy choices starting with the liberalising of price controls. That is if governments in the Pacific want to mitigate the impact of high global food prices on their citizens.
The Asian Development Bank (ADB), in a recent Policy Brief titled Living with High Prices, has suggested that liberalising price control could actually help reduce food prices in the islands as the high prices of imported food items would help encourage local food production to replace higher priced imports.
It’s one measure out of eight recommended in this brief to help governments in the Pacific beat the price hikes that have caused food shortages and riots in countries around the world.
“While it will be politically difficult to allow prices to rise, there are good grounds for arguing that PDMC (ADB’s Pacific development member countries) communities will be best served by accepting higher food prices during 2008,” it says.
“PDMCs have extensive price controls on basic food items. For example, in Fiji, about half of the basket of goods in the consumer price index is subject to price controls. If price controls are used to keep the price of imported food below world prices, suppliers will be unable or unwilling to buy new stock.
“Such price controls will have the same effect as an import ban and will prevent households from buying goods.
“Price controls that fix the margins of retailers and/or wholesalers may exaggerate the effect of higher world prices. Retailers and wholesalers typically only require a certain dollar margin per item to cover their costs and maintain supply. They would receive excessive margins if the dollar margin kept rising because margins were a fixed percentage of the rising price of rice and wheat.”
The policy brief goes on to say that price controls are a blunt tool to use when trying to strike a balance between helping the disadvantaged and ensuring that farmers have the incentives to produce more food.
“Price controls are generally unnecessary when there is genuine competition in retail and wholesale trade. Even when there is only one operator, profiteering can be curbed by the threat of competition from a potential competitor or by the ability of families to source directly from large centres.
“In rural areas, community pressure can also help curb profiteering by a single operator. There is likely to be genuine competition in most, if not all, urban areas in PDMCs and also generally in rural areas. Hence price controls are generally unnecessary.
“Price monitoring backed up by powers to intervene can be used as an effective but light-handed approach to market regulation if governments are concerned that full de-liberalisation may not work.”
ADB suggests that such a policy stance must however be complemented by targeted assistance for the disadvantaged and also hints on the high price environment as not all bad news for its Pacific member countries.
“Good government policy can maximise the wins from high export prices and minimise the losses from the higher prices of oil, rice and wheat,” it says.
“Poor policy will see opportunities missed and add to the problems facing the region. Much of what constitutes good policy makes sense even in the absence of high prices. The price increases do, however, raise the potential benefits and the urgency with which good policy should be pursued.”
Echoing government advisories across the region, ADB says the key to staying on top of the high food prices is for countries to grow their own food.
“High prices will provide the incentives the agricultural sector needs to increase production, a reaction that will ultimately help reduce food prices,” says Director General of ADB’s Pacific Department Philip Erquiaga in his foreword to this paper.
“Agriculture, however, has been neglected in recent decades and will take some time to rebuild. The surge in food prices highlights the importance of ending this neglect and paying more attention to the rural economy.”
Other policy actions proposed by ADB are:
• Avoid excessive taxation
Heavily levying fuel, rice and wheat should be revised as they could be detrimental to efforts to grow the economy.
• Provide targeted help to
the most vulnerable
Food programmes such as those adopted in Timor-Leste are encouraged as well as emergency support to help lift the production of local staples. For example, support to buy inputs to small-scale agriculture may help the vulnerable better help themselves. ADB suggests that such support services need to be carefully targeted to avoid creating adverse effects like “poverty traps” where people are encouraged to “stay poor”.
• Support rural infrastructure
and services
Funding for rural development has failed to keep pace with the need in many PDMCs, says ADB. The result is a poorly supported rural development that hampers the ability of islands countries to create and benefit from opportunities in rural areas.
“The transport industry—aviation, shipping, and road—is a major user of fuel in the Pacific (the rule of thumb is the sector uses about 50% of fuel). As fuel prices have risen, so have the costs faced by the transport industry.” ADB suggests that governments move to try to ease this by adopting a more liberal approach in the transportation sectors.
• Revise fuel import arrangements
PDMCs are encouraged to look at Samoa’s example when attempting to mitigate high fuel costs.
• Pursue alternative energy
sources and energy efficiency
“The higher oil prices raise the economic return from pursing alternative energy sources and energy efficiency, and renewed efforts in this area are called for,” says ADB.
• Make use of mining and oil revenue
ADB suggests: “PNG and Timor-Leste are fortunate to be net gainers from the higher world prices. Much of the benefit flows directly to their governments via higher tax revenue and dividends. It is important that these benefits are distributed within the community to help lessen the extra costs that many are facing.
“In PNG and Timor-Leste, local capacity constraints will hamper the ability to use the additional revenue well. At least in PNG, the surge in revenue is projected to be short-lived. It may prove sensible to bring in additional capacity from outside rather than building the internal capacity to manage a temporary surge in spending. Development partners provide one option for overcoming these capacity constraints. Undertaking projects jointly with development partners, perhaps with the government providing the majority of funds, rather than the usual minority, is a way to tap into existing project design and implementation capacity while safeguarding the use of public funds. This option may prove particularly attractive in establishing emergency relief programmes during 2008.”
Chindia: Emerging tourism market for region
Elenoa Baselala
In the next 12 years, at least 400 million visitors are expected to visit East Asia and the Pacific, about 25 percent of the 1.6 billion visitors that will travel the world.
Two countries, China and India (Chindia), will emerge as important players in the global front.
But a tourism expert says the region will need to do more than just marketing itself as an exotic destination if it is serious about attracting the Chindians.
Sun, sea and sand alone may not work with targets set for the higher end of the market.
Dr (Ted) Therdchai Choibamroong, of the Thailand Tourism Development Research Institute, says the Chindians will visit the South Pacific, but the challenge would be in developing marketing strategies that would capture the high value end of the market.
Attending a workshop organised by the Training and Productivity Association of Fiji, Dr Choibamroong spoke on mega-trends in tourism and hospitality industry and its future niche markets.
According to him, share of international arrivals of East Asia and the Pacific will increase from 14 percent in 1995 to 25 percent by 2020.
“Right now, international arrivals around the globe are approximately 700 million. Of the 1.6 billion tourist arrivals in 2020, it is estimated that about 400 million will be in East Asia and the Pacific.
“Expansion of low cost carriers will continue to drive intra-regional traffic,” Choibamroong says.
The cruise industry will experience an explosive growth, shopping from mega malls to folk craft centers would become critical for tourism destinations, airlines, travel agents and tour operators would align themselves with financial institutions to offer consumer travel loan.
Older, better-educated population will increasingly seek ecotourism and cultural travel products.
The nature of trips will become smaller in scope and more off-the-beaten-path.
Hotel and restaurant facilities will be designed for an aging population with lower rise steps, more handrails and wider doors.
The distinction between business and leisure hotels will erode because business clients will seek fitness and entertainment activities while leisure guests will demand advanced telecommunications.
However, since the Chindians buy goods and services cheapily, the high price of tourist attractions may not be attractive which Choibamroong says can be solved by saying why it has to be so.
Meanwhile, Pacific Islands Countries have joined forces with south-pacific.travel to exhibit at the Shanghai World Expo 2010, in response to an invitation by China.
Organisers of Shanghai World Expo 2010 plan to deliver the largest world exposition ever with over 200 participants (sovereign nations and international organisations) with an estimated 70 million visitors expected to attend.
south-pacific.travel has struck a deal with organisers to have the Pacific Pavilion at a high traffic area located near the Chinese Pavilion with a space area of 8100 square metres.
The construction and operation costs of the Pacific Pavilion will be covered by the Government of China at an estimated cost of US$9.75 million.
“Now that the agreement is in place, much a detailed work is still being needed to continue in order to ensure a well coordinated Pacific presence is achieved at the Shanghai World Expo,” south-pacific.travel’s chief executive, Tony Everitt said.
“In collaboration with the Pacific Islands Forum Secretariat, we will continue to work hard with the countries to make sure the Pacific presence is a successful one.
“China presents huge opportunities for Pacific tourism and other industries.”
The proposed Pacific pavilion involves the use of water within the pavilion to symbolise the Pacific Ocean.
‘Also, given that outdoor temperatures in Shanghai can reach 40 degrees in the heat of summer, a pavilion using water will be a refreshing break for visitors.
“Visitors can walk from “country” to “country” within the pavilion which will appear to be floating on water like the islands of the Pacific.
“Individual countries will take creative control of the design of their own country space within the pavilion - which is an opportunity to demonstrate the diverse architecture and cultural values of the region,” Everitt says.
He adds Pacific Islands countries will be consulted on the design of the pavilion.
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