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High Food Prices in South Asia: Status, Impact and Solution

Chandan Sapkota, SAWTEE, 2011-09-24

Abstract: Global food prices have surpassed all thresholds recorded in the past. The food-deficit low-income countries have been particularly hit hard by persistent rise in global food prices. Apart from negatively impacting progress made in poverty alleviation and auguring political instability, it has destabilized fragile fiscal balance in several low-income countries. On this backdrop, this brief focuses on the status of food prices in South Asia, how they are coping with it, and lay out viable solutions, including safety net measures. While all South Asian countries are facing high food prices, some are in more desperate situation than others. Addressing the impact of high food prices would require both domestic and regional initiatives. At the domestic level, short-term (emergency food supply and safety nets) and long-term measures (structural reform of agriculture sector) should be initiated. At the regional level, South Asian countries should focus on bringing into operation the concept of emergency food reserves, further liberalizing trade of agriculture goods, and harmonize agriculture policies and cooperation to the extent possible, among other measures.

**************DRAFT********************* Presented at South Asian Consultation on Food Justice in a Resource Constrained South Asia, 26-27 September 2011, Kathmandu, Nepal (Organized by Oxfam and SAWTEE)

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1. Global rise in food prices Global food prices have been rising unabated. When food prices spiked in mid-2008, the level was cited as being the highest threshold reached in recent memory. Unfortunately, this years prices have even surpassed the limit reached in mid-2008 (see Figure 1). The Food and Agriculture Organizations (FAO) Food Price Index (FPI)1 averaged 234 points in June 2011, one percent higher than in May this year and 39 percent higher than in June last year. A recent report by the high level panel of experts on food security and nutrition states that agriculture price volatility in the past five years has been higher than in the previous two decades, but lower than it was in the 1970s (HLPE, 2011). The rise in prices of food commodities is not homogenous. Prices of some food items have increased more than the other. For instance, currently price of sugar has been the highest of all commodities tracked by the FAO. Sugar price declined till May 2011 and then again started to rise rapidly. Price of cereals (particularly wheat and maize), dairy, and meat are consistently rising while that of oil and fats is stabilizing (though at an already high level compared to last year). The rise in world food prices after July 2010 is attributed to extreme weather events in major food producing countries and restrictions on grain trade, leading to higher food prices. For instance, Russia, the US, China and Central Asia were battered by drought. India and Russia imposed embargo on grain export, the US and the EU saw unfavourable weather conditions and Pakistan and Australia had heavy rains and floodsall putting pressure on food supply and then food prices. Currently, the Horn of Africa is facing food emergency primarily caused by prolonged droughts especially in areas struggling with conflict and internal displacement such as Somalia.2

The FAO Food Price Index is a measure that tracks the monthly change in the international prices of a basket of five food commodity groups (cereals, oilseeds, sugar, dairy and meat). The index is considered as a global benchmark for food price trends.
2

Near Record High Food Prices Keep Poorest People on the Edge. http://go.worldbank.org/4ENIS0R0Y0

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Moving forward, weakening of the US dollar, surge in oil prices, unfavourable weather events, commodity market fluctuations, and restrictive trade policies might further exert upward pressure on global food supply and prices.3 Figure 1: Rising food prices

Source: FAO The FAO predicts that high and volatile prices are likely to persist this year and in the coming years too, primarily because of the uncertainties surrounding output in major food producing countries and a sharp run down on inventories (FAO, June 2011b). This comes about even after forecast of an increase in food production this year and in the future as well. For instance, cereal production this year is expected to be three percent higher than in 2010 (FAO, June 2011a) but price is not expected to come down. Figure 2 shows that compared to last year, cereal price have increased the most of all food commodities. Cereal price is expected to remain high particularly in import-dependent developing countries. Food prices in the long term are expected to increase further and remain volatile. A recent study shows that the average world market price, relative to 2010 level, of processed rice would rise by 31 percent in 2020 and by 73 percent in 2030 (Willenbockel, June 2011). The corresponding figures for maize are 33 percent and 89 percent, respectively. Note that the rise in food prices is
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http://www.fao.org/economic/est/volatility/faqs/en/

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not homogenous in all countriesbuoyed by high domestic production and market restrictions, some countries might see lower local prices while others might experience ever-rising prices. But, as mentioned earlier, food prices will remain high in food-deficit low-income countries.

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Box 1: Food commodity prices between June 2010 and June 2011 Prices of cereals, crucial component of food basket of South Asians, increased the most. This gets reflected in domestic prices via trade policy, exchange rate and supply costs. The FAO Food Price Index averaged 234 points in June 2011, 39 percent higher than in June 2010. The FAO Cereal Price Index averaged 259 points in June, 71 percent higher than in June 2010. The FAO Oils/Fats Price Index averaged 257 points in June, 53 percent higher than in June 2010. The FAO Dairy Price Index averaged 232 points in June, 14 percent higher than in June 2010. The FAO Meat Price Index averaged 180 points, 18 percent higher than in June 2010. The FAO Sugar Price Index averaged 358 points in June, 59 percent higher than in June 2010.

Figure 2: Percent change in prices between June 2010 and June 2011
80 70 60 50 40 30 20 10 0 Food Price Index Meat Price Index Dairy Price Cereals Price Oils Price Index Index Index Sugar Price Index

Change in prices between June 2010 and June 2011

Source: Computed using FAO food price indexes

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2. Impact of high food prices on economy and households At household level, higher food prices mean higher spending to meet normal daily dietary needs and potentially a cutback on discretionary expenditure. The households, particularly those in the low income deciles, in developing countries are hit harder by higher food prices because food represents a much larger share of their total spending, i.e. demand for food is highly price inelastic when compared to developed countries citizens.4 South Asian households spend more than 50 percent of their income on food items while the citizens of developed countries spends about 10 percent of income on food. Higher food prices reduce household savings and non-food expenditure. However, if a household is a net producer of food items, then it will gain when prices rise. This is true of major food producing and exporting countries. For instance, farmers in northern hemisphere capitalized on rising food prices by shifting production to soybean plantation after its prices spiked rapidly in 2007 and 2008 (FAO, June 2011a). Large landholding farmers follow price signals more easily and try to reap higher income when prices of particular food item rise. This happened in the Mercosur area, where large land owning households easily reacted to planting crops whose prices were high in the market (IFAD, 2011). Unfortunately, this is not the case in South Asia, where a majority of the households own small, fragmented land from where total output is insufficient to meet household annual food demand and consumption. Since higher food prices compel households to spend more on food items rather than invest in income generating activities and also reduce their real income, many households might experience widening poverty gap and thus fall below the absolute poverty line. In fact, this was the case during the recent spikes in food prices. The food price rise of 2010-11 led to an average poverty change of 1.1 percentage points in low income countries and 0.7 percentage points in middle income countries. About 44 million people fell below the poverty line of US$1.25-a-day, according to a study by the World Bank economists (Ivanic, Martin, & Zaman, 2011). Worse, for those households failing to bridge the poverty gap, higher food prices would also mean higher probability of hunger and malnutrition (HLPE, 2011).
4

Note that as citizens get richer, the share of expenditure on food of total expenditure is relatively small and stable, i.e. for rich citizens the price elasticity of demand decreases. Unfortunately, South Asia does not have enough of such consumers or households. This is one of the reasons why the low-income countries are relatively more affected by rising and volatile food prices than the developed countries. For more see (HLPE, 2011)

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At macroeconomy level, low-income food-deficit countries are the ones most affected by higher food prices. First, they face difficulties in financing food imports. Second, they find hard to maintain fiscal balance in the face of increasing food subsidies, which might be warranted for certain section of the population that cannot meet daily food demand. It might widen fiscal deficit and deteriorate current account balance and overall balance of payments. Furthermore, high food prices drags up inflation, which might force governments to implement fiscal austerity measures to avoid overheating of economy, impacting growth rate.5 A recent ADB study estimated that a 30 percent rise in food prices might choke off 0.6 percentage points of GDP growth rate of low income countries, including South Asian countries (ADB, 2011, p. 18). Meanwhile, in the case of net food exporters, higher food prices mean higher exports revenue, stimulation of economic activities, and comfortable fiscal space to launch targeted welfare programs. Unfortunately, only India is a net food exporter in South Asia and so far has the luxury of launching exhaustive social protection and public works programs that are financed domestically.

Higher food prices also affect political stability. A latest study has showed a close association between higher food prices and political instability in the Middle East and North Africa (MENA) region (see Figure 3). Riots and protests are likely when the FAOs Food Price Index crosses a threshold of 210 (Lagi, Bertrand, & Bar-Yam, 2011). The study warns that protests may reflect not only long-standing political failings of governments, but also the sudden desperate straits of vulnerable populations.

The speed and extent of transmission of global food prices to domestic level depends primarily on exchange rate, supply costs, and trade policies. Undervalued exchange rate means more spending to import food items. Increase in supply costs (due to production shocks, poor infrastructure and transit facilities, and blockade and strike along major transportation routes) increase cost of food items in the product market. Restrictive trade policies (high tariff and non tariff barriers) increase final cost of food items.

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Figure 3: Food prices and political instability

Source: (Lagi, Bertrand, & Bar-Yam, 2011, p. 3). The chart shows time dependence of FAO Food Price Index between January 2004 and May 2011. The red dashed vertical lines correspond to beginning dates of food riots" and protests associated with the major recent unrest in MENA. The figures in parentheses show death toll initially linked to food riots. The inset shows FAO Food Price Index from 1990 to 2011.

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3. High food prices and its impact on South Asia When compared to the US and the EU, South Asia was relatively less affected by the global financial crisis. But, the region was not so lucky during the global economic crisis and the global rise in food and fuel prices. Following the liberalization of markets over the past two decades, domestic prices in South Asian countries are connected to international prices to some extent. For net food deficit countries, it has meant an increase of food imports in total food supply, opening up a channel for international food prices volatility to be reflected in domestic markets. After the decline in food prices following a spike in 2008, they have been surging again in all South Asian countries since last year. It is not only impacting macroeconomic stability, particularly increasing food imports, widening trade deficit, and increasing general prices, but also pushing millions of people below the poverty line. Food prices have been rapidly increasing in most of the countries following a convergence of its growth rates in 2003. In the recent period, food price inflation in Pakistan, followed by Nepal, is the highest in South Asia. Apart from adversely affecting poverty reduction efforts in the region, rising food prices also slow down the progress being made in achieving the Millennium Development Goals (MDGs). 3.1.Food prices in South Asia All the countries in South Asia have seen rise in food prices following the two episodes (2007/08 and 2010/11) of global food price spike. However, the extent of rise in food prices due to global food price spike is different across South Asia. For instance, landlocked countries have faced higher, sticky and volatile prices than coastal areas. Meanwhile, food prices have been varying within country itself as they are stable in areas with good supply chains, but high in remote areas. This implies that policy responses should primarily be country-specific. Additionally, within countries different categories of households are affected differently, i.e. the households in the lower income deciles are the most affected. Transfers and public works intervention to address food insecurity have to take this into account to eschew leakage and enhance efficiency. To show how prices of basic food items are rising, let us focus on two of the major food crops rice and wheatconsumed in South Asia. Figure 4 and Figure 5 depict retail prices of wheat and rice in one major city of each South Asian country (except for Maldives for which data is not available).

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Retail price of rice increased in all countries during mid-2008. It cooled off a little bit but is still high and rising. Overall, retail price of rice is highest in Pakistan. It is followed by Sri Lanka, India, Nepal, Bhutan, and Bangladesh. Recently, retail price of rice in Bhutan is rising rapidly even though it still has lower price than in Bangladesh. The price of rice is picking up since the beginning of this year. As of July 2011, retail price of a kilo of rice was USD 0.59, USD 0.52, USD 0.51, USD 0.49, USD 0.47 and USD 0.44 in Pakistan, Sri Lanka, India, Nepal, Bhutan and Bangladesh, respectively. In July 2008, the figures were USD 0.74, USD 0.58, USD 0.47, USD 0.54, USD 0.35, and USD 0.50 in Pakistan, Sri Lanka, India, Nepal, Bhutan and Bangladesh, respectively. Figure 4: Retail price of rice (USD per kg)

Source: GIEWS Food Price Data and Analysis Tool Meanwhile, retail price of wheat also spiked in mid-2008 and then cooled off a bit before rising again. As of July 2011, Sri Lanka has the highest retail price of wheat, followed by Afghanistan, Nepal, Bhutan, Pakistan, Bangladesh and India. Sri Lanka and Nepal are seeing a rapid rise in retail price of wheat. As of July 2011, retail price of a kilo of wheat was USD 0.78, USD 0.52, USD 0.51, USD 0.43, USD 0.38, USD 0.38, USD 0.34 and USD 0.34 in Sri Lanka, Afghanistan,

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Nepal, Bhutan, Pakistan, Bangladesh and India, respectively. In July 2008 the figures were USD 0.69, USD 0.68, USD 0.43, USD 0.35, USD 0.41, USD 0.55, and USD 0.30 in Sri Lanka, Afghanistan, Nepal, Bhutan, Pakistan, Bangladesh and India respectively, respectively. Figure 5: Retail price of wheat (USD per kg)

Source: GIEWS Food Price Data and Analysis Tool Overall, food prices of almost all items have increased in all South Asian countries. 3.2.High food prices and poverty Higher food prices and volatility without a corresponding increase in purchasing power reduce savings and increase vulnerability. For poor households that are barely able to meet household food demand, higher food prices mean a shortfall in income required to bridge income poverty gapthus automatically falling below the poverty line. This scenario of falling below the poverty line due to high food prices is likely for households that spend a substantial portion of their income on satisfying household food demand. And, South Asia is particularly vulnerable because estimates show that an average person in Bangladesh, Nepal, Pakistan and Sri Lanka

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spends, respectively, 56.05 percent, 57.88 percent, 46.99 percent and 63.55 percent of his/her total expenditure on food.6 The recent rise in food prices has in fact already showed up in poverty estimates. A recent ADB study estimates that a 10 percent increase in food prices will increase the number of poor people (in millions) living below US$1.25-a-day by 3.8, 0.01, 22.8, 6.7, 0.6, 3.5, and 0.2 in Bangladesh, Bhutan, rural India, urban India, Nepal, Pakistan, and Sri Lanka, respectively (ADB, 2011). Increase in food prices have the most impact on poverty in rural India, followed by Pakistan and Bangladesh. Figure 6: Change in percentage of poor (in percentage points) with an increase in food prices by 10%, 20% and 30%
Change in percentage of poor (in percentage points) with an increase in food prices by

9 8 7 6 5 4 3 2 1 0

10% 20% 30%

Source: (ADB, 2011)

Estimates by Economic Research Service, using the 1996 ICP data, United States Department of Agriculture (USDA).

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Figure 7: Change in number of poor (in millions) with an increase in food prices by 10%, 20% and 30%
Change in number of poor (in millions) with an increase in food prices by

70 60 50 40 30 20 10 0 30% 20% 10%

Source: (ADB, 2011) 3.3.High food prices and inflation Since food items are major component of the basket of goods used for calculating consumer price index (CPI), rise in food prices gets visibly reflected on CPI. Higher food prices have been dragging up inflation in all South Asian countries. As depicted in Figure 8, countries having higher growth in food prices have higher inflation rate. For instance, Sri Lanka had the highest FPI growth in 2007 and this was reflected in high CPI growth. In 2009, FPI growth moderated, which is also reflected in lower CPI growth. In 2010, Pakistan had the highest inflation rate in South Asia. It also had the second highest FPI growth in the same year.

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Figure 8: Inflation and food prices in South Asia

Source: Data sourced from ADBs Key Indicators for Asia and the Pacific 2010 Due to concern over higher food prices dragging up general prices, South Asian governments have been forced to cut back on planned expenditure. For instance, Indian Finance Minister Pranab Mukherjee recently said that higher inflation will have an impact on economic growth as planned investment is withheld for fear of overheating the economy.7 Meantime, the Indian central bank raised interest rate for eleven times since 2010.8 Except India, all South Asian countries have deficit food production. It means they need to fulfil domestic shortfall in food production by imports. For fiscally challenged low-income countries, this might be a problem because either they have to seek external funding or risk widening fiscal
7

'Pranab Mukherjee: Rising inflation is impacting growth' http://www.ndtv.com/video/player/news/pranab-mukherjee-rising-inflation-is-impacting-growth/187132 8 'Indias RBI May Hold Rates on Factory Output Data, Centrum Says' http://mobile.bloomberg.com/news/2011-09-12/india-s-rbi-may-hold-rates-on-factory-output-data-centrum-says

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deficit, which will lead to complications in managing budget for other development activities. Generally, the practice has been to seek external assistance, especially during emergencies. For instance, due to long precipitation deficit and localized floods, Afghanistan is going to face acute food shortage and financing difficulties, which require donors to step in to provide emergency supplies. Some donors have already stepped up food aid and subsidies in Afghanistan (see Appendix B, Figure B.1). Similarly, in Nepal the World Food Programme (WFP) financed 100,000 tonnes of rice import to supply to the most acute food deficit districts. 3.4.High food prices and hunger and undernourishment Food insecurity and price instability affect hunger and malnutrition. Though the state of hunger in South Asia has improved when compared to the level in 1990, it is still high. According to the Global Hunger Index 20109, hunger in Bangladesh and India has improved from extremely alarming to alarming, and in Pakistan and Sri Lanka from alarming to serious. The state of hunger in Nepal, however, has remained the same: alarming. Overall, hunger in South Asia is alarming and worse than in Sub-Saharan Africa (see Table 1). Table 1: State of hunger in South Asia Country Bangladesh India Nepal Pakistan Sri Lanka 1990 Extremely alarming Extremely alarming Alarming Alarming Alarming 2010 Alarming Alarming Alarming Serious Serious

Source: (Von Grebmer, et al., 2010) The above hunger scenario is derived from estimates and indexing of indicators such as proportion of undernourished, prevalence of underweight in child under five years, and mortality
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International Food Policy Research Institute. 2010. Global Hunger Index 2010. www.ifpri.org/publication/2010global-hunger-index-background-facts- and-key-findings

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rate of those below five years of age. While these estimates give a sense of the gravity of hunger, a direct survey of the people in each country sheds further light on what people feel about the depth of hunger and food insecurity. A useful source for this is the 2010 Gallup World Poll, which shows that a large proportion of the population in South Asia feel that they are facing hunger and food insecurity (see Figure 9). In South Asia, Sri Lankans feel that they face higher food insecurity (39 percent of population), followed by Pakistanis and Afghans (both 38 percent of population). Furthermore, more Afghans (33 percent of population), followed by Pakistanis (22 percent), feel that they are facing hunger than citizens of other South Asian countries. Interestingly, the proportion of Nepalis reporting food insecurity (18 percent) and hunger (10 percent) is the lowest in South Asia. According to the latest government data, 38 out of 75 districts are facing food deficit production. Figure 9: Self-reported food insecurity & hunger in South Asia

Source: Gallup poll (face-to-face interview) data compiled from (Headey, 2011, pp. 52-62)10

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Headey doubts the severity of food crisis as outlined in multiple reports and literature and argues that the negative impacts of higher food prices in 2007-08 was more than compensated by high economic growth (and insufficient coverage of China and India on such studies). Headey estimates that global self-reported food insecurity fell during 2005 and 2008, with 60 million to 250 million fewer food-insecure people. The main reasons are rapid economic growth and very limited food price inflation in the worlds most populous countries, particularly China and India.

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Higher food prices also affect nourishment intake by households. When low income households face difficulties in meeting food demand, they usually resort to consuming goods that fill up their stomach, which means the priority is on keeping stomach full and averting hunger rather than consuming the minimum required calories and nutrients to be reasonably healthy. This is particularly true of children and has lasting impact on their physical and cognitive growth. Table 2: Undernourished in South Asia (% of population) Proportion of undernourished in total population (%) Country Bangladesh India Nepal Pakistan Sri Lanka 1990-92 2004-06 36 24 21 22 27 26 22 16 23 21

Source: (Von Grebmer, et al., 2010) With an estimated 504 million people below the poverty line of US$ 1.25 a day in South Asia11 in 2010 (Wan & Sebastian, 2011), undernourishment12 is a major concern when food prices spiral up. Almost 26 percent of the population in Bangladesh is undernourished. The figures (percent of the population that is undernourished) for India, Nepal, Pakistan and Sri Lanka are 22, 16, 23, and 21, respectively (see Table 2). Similarly, a large proportion of children under five years are underweight. It is as high as 43.5 percent in India and as low as 21.1 percent in Sri Lanka. Ensuring reliable, adequate and nutritious food is essential to address malnutrition in the region. Hunger and undernourishment have long-term economic implications as they reduce peoples capacity to work efficiently and fight against diseases by undermining the immune system.
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Excluding Afghanistan The FAO estimated that the 2007/08 spike in global food prices increased the number of undernourished people from 850 million in 2007 to 1.23 billion in 2009. Though there is no dispute that high food prices have increased malnourishment, the FAOs numbers are disputed on the grounds that the analysis did not account for the low transmission of higher global prices in the most protected markets of developing countries and the gains arising from high prices of non-cereals, which are a crucial part of the livelihood of many people in developing countries (HLPE, 2011, p. 11).

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4. Food production and price outlook for South Asia 4.1.Short term outlook Afghanistan is expected to experience the most food insecurity due to unfavourable weather (long precipitation deficit and localized floods). The 2011 wheat harvest in Afghanistan is estimated at 4 million tonnes, about half a million tonnes lower than the previous years output.13 Grains and rice production are expected to change. The FAO predicts that food insecurity this year in general remains high in the drought-affected areas in the north, northeast and west. Overall, food prices are expected to remain high. Figure 10: Cereal production in Afghanistan (million tonnes)
Cereal production in Afghanistan (million tonnes)
6 5 4 3 2 1 0 2009 Wheat 2010 Coarse grains 2011 Rice (paddy)

Source: Crop Prospects and Food Situation No. 2, June 2011, FAO; Estimates for 2010; Forecast for 2011 In Bangladesh, which is the third largest food producer in South Asia, paddy harvest is expected to hit record level. This years harvest of Boro paddy is estimated at a record level of about 19 million tonnes, approximately 1.6 percent higher than last years bumper output, thanks to adequate irrigation supplies coupled with distribution of subsidized fertilizer, quality seeds, and

13

The government estimate for wheat output in 2011 is 3.26 million tonnes, about 28 percent lower than the previous year. See FAOs Afghanistan brief of August 2011 at http://www.fao.org/giews/countrybrief/country.jsp?code=AFG

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electricity power and diesel for irrigation.14 The cereal production in 2010 was recorded at 52.2 million tonne, which is expected to increase by one million tonnes this year. Wheat and grains production are expected to increase marginally in 2011. Prices are expected to decline moderately. Figure 11: Cereal production in Bangladesh (million tonnes)

Source: Crop Prospects and Food Situation No. 2, June 2011, FAO; Estimates for 2010; Forecast for 2011 In Bhutan, the total cereal production estimated at 185 000 tonnes (including paddy) for 2011, following the drought in 2009, is expected to increase domestic supply and lower food imports.15 Prices are expected to be stable. In India, this years wheat harvest is estimated to be 84.3 million tonnes, about four percent above the last years record production. The current wheat stocks are estimated to be19 million tonnes, far greater than the official target of 8.2 million tonnes. 16 Wheat prices have come down and rice prices are stabilizing in India. Grains output is expected to reach a record 41.4 million tonnes in 2011. Similarly, rice production is expected to increase by almost 9 million tonnes, reaching 150 million tonnes. Total cereals production is expected to increase by 5.2 percent between 2010 and 2011.

14

See FAO Bangladesh country update for August 2011. http://www.fao.org/giews/countrybrief/country.jsp?code=BGD ; Note that total rice production this year is estimated to be 50.3 million tonnes in Bangladesh. 15 See FAO Bhutan country update for August 2011.http://www.fao.org/giews/countrybrief/country.jsp?code=BTN 16 See FAO India country update for August 2011. http://www.fao.org/giews/countrybrief/country.jsp?code=IND

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Figure 12: Cereal production in India (million tonnes)

Source: Crop Prospects and Food Situation No. 2, June 2011, FAO; Estimates for 2010; Forecast for 2011 Currently, India produces the lions share of total South Asian food production. In 2009, its production was three times higher than the total production by other South Asian countries combined (see Figure 13). India is the worlds second biggest producer of wheat, sugar and rice and has a sizable surplus, which is beyond the limit set by the government, in domestic stock. Figure 13: Total food production in South Asia (million MT)

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Source: Authors computation using FAOSTAT database (Total food production is equal to the sum of total production of cereals, citrus fruit, coarse grain, fibre crops primary, fruit excl melons, jute & jute-like fibers, oilcake equivalent, oil crops primary, pulses, roots and tubers, treenuts, and vegetables & melons); Note: In the chart above, India is represented on right y-axis and others on left y-axis. In Maldives, most of the food demand is met by imports. Current imports of wheat and rice are steady at about 45,000 tonnes per annum.17 Changes in global food prices are readily reflected in domestic food prices in Maldives. It is also particularly vulnerable to the vagaries of climate change and rising sea level. In Nepal, wheat harvest this year is estimated to be 1.6 million tonnes. Grains and rice production in 2011 are expected to be 2.4 million tonnes and 4.5 million tonnes, the same level recorded in 2010. Total cereal production is expected to increase by 1.2 percent between 2010 and 2011. Food price inflation is expected to be higher than non-food price inflation.18 Figure 14: Cereal production in Nepal (million tonnes)
Cereal production in Nepal (million tonnes)
4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2009 Wheat 2010 Coarse grains 2011 Rice (paddy)

Source: Crop Prospects and Food Situation No. 2, June 2011, FAO; Estimates for 2010; Forecast for 2011
17

See FAO Maldives country update for August. 2011.http://www.fao.org/giews/countrybrief/country.jsp?code=MDV 18 See FAO Nepal country update for August 2011.http://www.fao.org/giews/countrybrief/country.jsp?code=NPL

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In Pakistan, despite problems following the devastating floods in 2010 and in September this year, the 2011 winter wheat harvest has been estimated at a near record level of 24 million tonnes (an increase of 0.7 million tonnes over output in 2010 but the same as in 2009). This years grains and rice output are expected to remain unchanged at 2.4 million tonnes and 4.5 million tonnes, respectively. Domestic wheat prices have come down and rice prices are stabilizing in recent months. 19 Pakistan is the second largest wheat producer in South Asia. Figure 15: Cereal production in Pakistan (million tonnes)

Source: Crop Prospects and Food Situation No. 2, June 2011, FAO; Estimates for 2010; Forecast for 2011 In Sri Lanka, the aggregate annual 2011 output of paddy is expected to be lower than in 2010 due to the impact of floods.20 Though food prices are expected to decline a bit, they still will remain at high level. India and Pakistan are major wheat producers while India and Bangladesh are major rice producers in South Asia. Overall, favourable weather, enhanced supply of inputs, and high domestic/international prices are expected to boost production this year in India, Pakistan, Nepal and Bangladesh (FAO, June 2011b). Afghanistan is going to see a decline in total cereal output by 8.5 percent between 2010 and 2011. Figure 16: Total cereal production in South Asia (million tonnes)

19 20

http://www.fao.org/giews/countrybrief/country.jsp?code=PAK http://www.fao.org/giews/countrybrief/country.jsp?code=LKA

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Total cereal production in South Asia (million tonnes)

300 250 200 150 100 50 0 Afghanistan Bangladesh 2009 India 2010 Nepal 2011 Pakistan

Source: Crop Prospects and Food Situation No. 2, June 2011, FAO; Estimates for 2010; Forecast for 2011 (Total cereal production is the sum of total wheat, coarse grains and rice production) 4.2.Long term outlook By 2020, in India, domestic user prices of paddy rice, wheat and maize are expected to increase by 48.7 percent, 26.7 percent and 43.7 percent, respectively. The corresponding figures for South Asia sans India are 32 percent, 24.5 percent, and 36.6 percent (Willenbockel, June 2011). With an increase in total factor productivity growth by 50 percent (due to increased R&D, accelerated international technology and knowledge transfer and measures to raise yields in small holder agriculture), by 2020 domestic user prices of paddy rice, wheat and maize in India are expected to increase by 36.2 percent, 17.9 percent, and 33.7 percent respectively. The corresponding figures for the rest of South Asia are 23.2 percent, 16 percent and 27.7 percent respectively. Overall, food prices are expected to remain high globally in the near future (Helbling & Roache, 2011).

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5. Major causes of high food prices The level of food prices in South Asia are not mutually exclusive of the changes in food prices at the global level. The prices reflect both global and domestic trends in output, supply-side constraints, and trade and exchange rate policies. Clearly, the rapid rise in food prices in South Asia is following the global rise in food prises, which have been surging upward globally despite an increase in total production. Some of the factors that have been pushing food prices to spiral upward are discussed below: Weather related supply shocks in major food producing countries. In South Asia, the flooding in Pakistan in 2010 submerged a large swath of land (almost one-fifth of total area) and destroyed crops.21 This year as well Pakistan is seeing heavy flooding and has about 4.2 million acres of land submerged in water since late August (Reuters, 2011). Similarly, Bangladesh was battered by cyclone and heavy rains, which affected food production. Afghanistan is facing long precipitation deficit and localized floods. These events have triggered negative supply shocks in South Asia. Globally, weather related events have affected output in Russia, Canada, the US, Australia, China, Argentina and Kazakhstan, among other major food producers. All of these have amplified supply shocks and pushed up prices. Demand shocks in almost all the countries. Though total production has increased in most cases, productivity growth has not kept pace with rising population growth, leading to increased demand of food items. The world population is expected to reach 9 billion in 2050. The total South Asian population is projected to reach 1.9 billion in 2025 and 2.3 billion in 2050.22 It will further increase demand and prices if production and productivity growth do not match population growth. Meanwhile, the added demand for food from the emerging middle class in the developing countries will put more pressure on food prices as they consume more meat and fish products, which require even more basic food items to produce (Foresight, 2011). The World Bank estimates that the demand for food will

21

The devastating flood in 2010 made 11 million homeless and damaged irrigation systems, bridges, houses and roads. The estimated total cost of the damage is around US$11 billion (Reuters, 2011). 22 Computed from the US Census Bureaus mid-year population projection. http://www.census.gov/ipc/www/idb/region.php

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rise by 50 percent by 2030, thanks to rising population, rising affluence, and a shift in dietary consumption by the middle class. Distorting farm subsidies, especially in the US, in favour of biofuel. Biofuel demand was widely seen as one of the factors behind the soaring food prices in 200708 and it continues to be seen as a major factor behind the current high food price spree. In 2010, the production of corn-based ethanol absorbed about 15 percent of global corn production (Helbling & Roache, 2011). The increase in biofuel demand in the US and the EU created a demand shock and pushed up food prices, which were also reflected in food prices in South Asia. Trade distortions such as export restrictions have also heightened anxiety among net food importing countries, leading to a situation where everyone is pre-emptively purchasing food from the international market and stocking them up. This led to a sudden increase in demand, created hysteria, and pushed up food prices. Moreover, depletion of inventory added fuel to fire and sent food prices up in the interim period, i.e. until the inventories were replenished. Protectionist trade policies were observed recently when food prices skyrocketed. The World Bank economists have estimated that restrictions on rice exports explained almost 40 percent of the increase in global rice price in 200708 (Martin & Anderson, 1-2 October 2010). Though speculation of food commodities itself is not a direct cause of skyrocketing of food prices, excessive speculation may have magnified the impact of real food demand and price shocks. Since speculators follow market trends, they might have aggravated the volatility of food prices, but not directly caused food prices to spiral upwards in the first place. It might have had a second round effect after the first round of production and price shocks. There is still no clear evidence on if speculation in the futures market triggered higher food prices (HLPE, 2011, p. 10). Meanwhile, a latest study by World Development Movement (WDM) squarely blames the financial markets23 for excessive
23

The WDM report argues that financial speculators now account for more than 60 percent of some

agricultural futures and options markets. It was 12 percent a decade-and-a-half years ago. Farmers and those having direct commercial interests hold just 40 percent of the market, leading to a situation where agricultural markets are not responding to the underlying fundamentals of demand for and supply of food commodities. The incentives for real producers of food are waning. The report also notes that total assets of financial speculators have increased to US$126 billion this year from US$ 65 billion in 2006.

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speculation, and distorting and undermining the effective functioning of agricultural markets (Worthy, 2011). One thing that is definite is that there was dramatic increase in the volume of non-commercial transactions on derivates market and it contributed to pushing up prices or forced countries to adopt restrictive policies to ensure supplies for their own population. Increase in fuel costs due to conflict in the Middle East and North Africa (MENA) increased transportation costs of food grains, leading to higher prices in the product market.

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6. Addressing the impact of high food prices The population of South Asia is projected hit 2.3 billion by 2050. The world population is expected to be around 9 billion by 2050. It means an increase in demand for food items both at the regional as well as global levels. Given the structural change in demand for food items (such as dietary shift to more meat based products and crop-based biofuel) in several emerging and developed countries, the existing high prices might remain sticky at higher level unless the increase in demand is matched by structural increase in supply. Unfortunately, it seems unlikely at least in the short run (Helbling & Roache, 2011). Hence, South Asian countries need to look for multiple optionsfrom emergency measures to reforming the agriculture sector to increasing agriculture production and productivity to address the impact of high food prices. Productivity growth (crop produced per hectare) has to outstrip demand growth in the long run and supply growth has to respond to higher pricesboth of which will help ease pressure on food market. Since the worlds population growth is growing at just over one percent a year, staple yields will have to rise by at least 1.5 percent a year (to also allow for an increase in demand for animal feeds) (The Economist, 2011). Also, not only production and productivity will have to increase, the accessibility of food items in remote and food deficit places will also have to be improved. At times, even when there is surplus at national level, some districts or provinces within the country might face short supply of food, leading to higher prices. For instance, even though Nepal is expected to have food surplus in fiscal year 2011/12, the WFP argues that there still are 1.3 million people facing food deficit due to lack of accessibility. Without accessibility, particularly good distribution system, people wont be able to purchase food even if they are monetarily able to, leading to widespread hunger in remote areas. Amartya Sen, in his famous book Poverty and Famines: An Essay on Entitlement and Deprivation, argues that lack of adequate food distribution system is one of the reasons why we see famine even when total food production is higher during famine years when compared to non-famine years (Sen, Poverty and Famines: An Essay on Entitlement and Deprivation, 1983). To address the impact of higher food prices various country-specific short run and long run measures could be undertaken both at the national as well as regional level. The exact nature of

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intervention measures should depend on the severity of food crisis, food accessibility and food availability. During crises, recovery (price, production, and supply stabilization) should be the first priority. It should be followed by reform of the whole agriculture sector and distribution systems keeping in mind the changing global, national and local food and market dynamics.24 Safety nets are one of the most important and effective measures to fend off the disastrous impact of higher food prices and food insecurity at the household level. 6.1. National level At the national level, the first priority should always be recovery, which can be attained by implementing a range of interventions such as emergency food aid, well-targeted safety nets, subsidized food, and effective market supervision to reduce speculation and artificial rise in prices. When countries face a sudden rise in food prices, they should release supplies from national stock to satisfy either surge in demand or shortfall in supply. If this is not adequate, then countries should import food from abroad or seek immediate food assistance in case of emergency. The emergency release of supplies from small and strategically located food reserves helps to cool down local rise in food prices. Furthermore, reducing tariff on food imports could also help bring down domestic food prices, especially in a country whose food imports constitute a major component of import basket. Duty-free import policy for rice, wheat, pulses, edible oils, and raw sugar has already been implemented by a number of South Asia countries. Meanwhile, stocking up reserves when the market is seeing high food prices is not a smart move as it will further fuel an increase in prices. The countries should also monitor price fluctuation in local markets because in some cases rise in food prices have little to do with production and market fundamentals and more to do with market imperfections arising from the disconnect between farms and markets. For instance, one of the reasons for high and volatile local food prices in Nepal is the market manipulation by middlemen or agents, who purchase goods at a lower price from farmers and then sell it to retailers at higher price. In effect, the agents are distorting price in the market and are acting as both monopsony and monopoly in factor and product markets, respectively (Sapkota, Food
24

This follows the Keynesian prescription similar to the one when a country faces severe slump in economic activities. The usual prescription is recovery first and then followed by reform, not the other way round, given that there is comfortable fiscal space to implement both type of interventions (Davidson, 2009).

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Security in Nepal, 2011a). In a recent incident, farmers from Saphai village in Janakpur district of Nepal went on a strike demanding markets for their produce and punish those middlemen creating artificial shortage of chemical fertilizers, seeds and pesticides.25 A well-targeted safety nets programme26 should also be launched to reduce the stress poor households face during food crises. Both conditional and unconditional safety net programmes are launched by several countries during the global economic and food crises. But, rather than simply transferring money to people, conditional transfers are preferred by most governments and donors. Conditional transfers are usually in the form of food assistance in return for local level work that can include work to increase agriculture production or to build local infrastructure. For instance, an evaluation of Ethiopias Productive Safety Nets Programme (PSNP) by Devereux and Sabates-Wheeler shows that food transfers or cash plus food packages are more effective than cash transfers alone as it leads to higher income growth, livestock accumulation and food security (Sabates-Wheeler & Devereux, 2010). PNSP combines both transfers and public works components of social protection intervention. Following the high food prices in 2008, 23 countries implemented cash transfer programmes, 19 countries introduced food assistance programmes, and 16 countries took measures to boost disposable income of households (FAO, 2009). These kinds of social protection interventions are being implemented at national level in South Asia countries as well. For instance, in India the provision of highly subsidised rice or wheat distribution programme especially for the belowpoverty line families under the National Food Security Act has been scaled up. The entitlement under this programme is 25 kg of rice or wheat per month per family at INR 3 per kg. Bangladesh extended its work-for-food programme in response to damages caused by natural disasters and rise in food prices (David, Grosh, & Hoddinott, 2003). Similarly, to address child malnutrition during times of high food prices, Bangladesh and India launched school feeding programmes. Through NREGA, the Indian government is addressing unemployment and food insecurity in rural areas by providing 100 days of guaranteed work to each adult member of a household at the prevailing unskilled wage rate (see Box 2 for more on safety net programmes,
25

See Farmers of Prezs native village take to the streets. Republica, September 12, 2011; http://myrepublica.com/portal/index.php?action=news_details&news_id=35893 26 On the request of the FAOs Committee on Food Security, HLPE will be bringing out a report on social protection in October 2012.

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including NREGA). Recently, the National Planning Commission of Nepal floated a proposal to implement guaranteed rural works program that will be similar to NREGA.27 In the long term, agriculture reform aimed at increasing production and productivity and also to address volatile food prices should be the priority. This will help address the structural issues plaguing agriculture sector. While building up national food buffer stocks is counterproductive when food prices are high in the short term, it can nevertheless be a smart move in the long term. Enough stock at designated and strategic locations will help tame down food price speculation in the long term. Additionally, agriculture sector should get adequate attention and investment both public and private investment. While private investment in agriculture sector is understandably very low due to high degree of uncertainty, it is surprising that public expenditure is decreasing. The government should investment more in building infrastructures such as road and irrigation to link farms with markets and to supply farms with adequate water, respectively. A potentially sustainable approach to promote investment and increase production is public private partnership, which is virtually unheard of in many countries in South Asia. Reforms also have to be enacted so that repeated bouts of food price surges are better fended off at the national and local levels. To meet rising food demand and to reduce pressure on food prices, the South Asian countries need to shift to more intensive agriculture, particularly in regions where productivity is low today. However, it needs to be done by considering long-term environmental and economic sustainability.28 Importantly, the South Asian countries need Green Revolution 2.0replicating the Green Revolution of 1970s in India and Pakistan but with more focus on environment and economic sustainability. 6.2. Regional level At the regional level, the first priority should also be recovery and then reform. An important step towards recovery from high food prices in the region is to have easily accessible regional food reserves. Realizing the urgency to address high food price and food insecurity through regional cooperation after the food crisis of 20072008, South Asian leaders, during the 15th
27

For the range of social protection and socioeconomic security measures taken by the Nepalese government, see (Koehler, 2001) 28 'World Food Supply: Whats To Be Done?' http://green.blogs.nytimes.com/2011/06/10/world-food-supply-whats-to-bedone/?scp=2&sq=mozambique&st=cse

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Summit of the South Asian Association of Regional Cooperation (SAARC) held in Colombo, agreed to expedite the operationlization of the SAARC Food Bank, which is expected to serve as a regional food reserve for SAARC member countries during food shortages and emergencies. The Food Banks reserve of food grains has been raised from 241,580 metric tons (MT) to 486,000 MT. But the SAARC Food Bank is yet to become fully functional. If properly designed and implemented, it could help relieve pressure on some countries facing urgent food shortages. The region should have enough food in stock to avert speculative price spikes. Having a minimum level of regional and world stocks is a sufficient condition to avert price spikes (HLPE, 2011). Regarding trade policy, none of the countries should neither impose embargo on food exports nor slap high exports tariff to trade within South Asia. Encouragingly, despite imposing ban on rice and wheat exports, India made an exception on exports to Nepal and Bangladesh during the latest crisis. Meanwhile, SAARC members should also trim their respective sensitive lists so that at least the major agriculture goods that are consumed in high proportion in the region are traded freely at a very low cost. Average applied tariff on agriculture goods is still higher than in trade of other goods in the region (Sapkota, 2011b). Reducing high food prices and volatility and minimizing its impact also calls forth long term reform measures in the region. One of such measures is increasing trade policy coordination so that food price volatility is reduced during crisis. Another measure could be efforts to address structural issues so that the region is better prepared to fend off increased global food price volatility. It means, among other measures, building required infrastructure that would help increase agriculture production and productivity, and also reduce cost of doing business both within and across borders. Collaboration on agriculture R&D will also be immensely helpful. Agriculturally successful nationssuch as India and Pakistanshould share their experiences with other countries in the region. If best practices in these countries can be customized in the context of other countries, then it will do a lot to achieve national food security to some extent. 6.3. Global level At the global level, emergency food aid has to be always readied for supply to low-income fooddeficit countries, especially those that cannot finance food imports when prices skyrocket. The

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industrialized countries should also increase agriculture aid and help to finance targeted safety nets. Protectionist policies should be avoided at least in the trade of crucial agricultural goods. The advanced countries with vibrant financial markets should better regulate commodity derivatives, which have been partially blamed for amplifying high food prices. Meanwhile, distorting policies such as those related to crop-based ethanol production and processing should be avoided. Moreover, the developed countries need to avoid agriculture subsidies and protection, or at least scale it down, so that farmers in low-income countries are incentivized to produce agriculture goods.

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7. Conclusion The global rise in food prices has affected impacted domestic food prices in South Asia. The low-income net food importing countries have been particularly hit hard, leading to fiscal strain and some macroeconomic imbalance. High food prices have affected inflation, hunger and malnutrition, and poverty and might have reversed the gains made in achieving some of the MDGs. Food prices are expected to stabilize, though at high level, in major food producing countries such as India and Pakistan in the short term. Other countries are expected to see high and volatile food prices in the short term despite increase in total production. In the long term, food prices are expected to remain at high level. To fend off the negative consequences of rising food prices, South Asian countries have launched a number of measures ranging from stabilizing agriculture market prices to smoothening supply to implementing social safety nets. In the long term, they challenge is to increase investment in agriculture with a view to increase production and productivity keeping in mind environment sustainability. For this to happen South Asian countries need to launch initiatives at the domestic level as well as seek greater cooperation in the region.

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BOX 2: High food prices and safety nets Safety net programmes are a part of social protection agenda. They aim to address risks, vulnerability and social exclusion faced by certain section of the population. Safety nets assist households in building a short term shield against external shocks that affect their ability to finance household needs and sustain livelihood options. It also helps to ease liquidity constraints faced by poor households, boost demand for local agriculture goods, encourage entrepreneurial activities and create multiplier effects in the local economy (Devreaux, Sabates, & Guethner, 2008). Amidst rising food prices, well designed social protection programmes prevent an increase in poverty and inequality, and help households maintain access to food and essential healthcare and education. Safety nets come in a range of forms and purposes: conditional or unconditional transfers, food vouchers, food-for-work programmes, employment guarantee, and school feeding programmes, among others. Conditional cash transfersuch as the hugely popular and successful Opportunidades of Mexicocomes with conditions such as ensuring regular enrolment of children in schools and checkups in local healthcare centres or clinics. Unconditional transfers include social pensions, child support grants and family allowances. Food vouchers are given to specific households so that they can use it to get subsidized food grains from specific markets or government run shops. Indias National Rural Employment Guarantee Act (NREGA) is a safety net intervention that guarantees 100 days of employment per year at the prevailing unskilled wage rate29 to an adult member of each rural household. Due to special focus on gender, female employment in NREGA is about 48 percent of total employment, which is above the 40 percent mandated by the programme. In 2010/11, NREGA provided employment to approximately 55 million households. Approximately 30.6 percent and 20.8 percent of the total employed were from scheduled castes (SCs) and scheduled tribes (STs). Despite the massive scale and reach of the program, it costs approximately 0.7 percent of GDP.30

29 30

This year it has been adjusted to inflation and revised up to Rs 120 a day. Earlier, it was Rs 100 a day. Authors estimate based on data on programme cost data from NREGA website and GDP figure from union budget.

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The above-mentioned examples are social protection measures related to transfers and public works. Generally, countries choose one or the other to implement such programmes in a specific area or to target certain section of population. A strict public works program that does not contain direct unconditional transfer might bypass those people (such as disabled and elderly) who need protection but are unable to engage in public works. In such situation, a combination of public works and direct transfers might be hugely relevant. South Asian countries need to explore this option as well, especially in those areas where a majority of youth have migrated abroad for employment.31 The Ethiopian Productive Safety Net Programme (PSNP) is a good example of this approach. Targeting chronically food insecure households in famine-prone areas, Ethiopia launched PSNP in 2005 and included both transfers and public works components in the same program. It has been successful in meeting its food security and other social objectives (Lieuw-Kie-Song, 2011).32 PSNP covers labour-constrained households by the safety net (transfer) program, which public works program that uses labour from each household cannot cover. Furthermore, it also employs non labour-constrained households in public works that focus on natural resource rehabilitation and maintaining rural infrastructure, which transfer programs cannot do. Labourconstrained households (due to sickness, maternity, household size, disability, old-age, or death) can switch partially or fully to the direct unconditional transfer component of the program. This switch can be either permanent or temporary depending on the nature of the constraint faced by households. Safety nets are crucial dampening the impact of high food prices on poverty and hunger. Evidence shows that vulnerable household and children receiving social transfers tend to be relatively better nourished (Samson, Van Niekerk, & Mac Quene, 2006). Additionally, if a safety net programme compensates, by providing cash in return for public work, farmers the loss of entitlements due to natural calamities such as droughts and floods, then it does a lot to boost the affected households command on food, significantly lowering probability of occurrence of
31

This is even more important when remittance inflows start declining, which happened during the global economic crisis in 2009. Remittance inflows to South Asian countries have stabilized lately. 32 PSNP has approximately 8 million beneficiaries from around 1.5 million households. So far, the cost of the program is 1.2 percent of Ethiopias GDP. It provides transfers (15 kilos of cereal per household member per month for six months a year) to food insecure households. For households that are required to work, which is guaranteed, to get this transfer must work for five days to receive the transfer for one person.

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hunger and famines (Sen, Food and Freedom, 1987, p. 13). In fact, Amartya Sen attributes Indias success in eliminating famines post-independence to such programmes that compensate for the loss of entitlements. For people to avoid hunger, it is necessary that they have physical, economic and social access to food. ----------

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8. Appendix A Some of the measures taken by South Asian countries to tame high food prices and its impact on economy and households are listed below. Afghanistan 70,000 tonnes of grain reserve released from buffer food grain stock and 200,000 tonnes of grain were imported Input subsides were given (financed by donors) Safety net programme: Food support targeted at vulnerable population (financed by donors) Bangladesh In July 2010 it imported 400,000 tonnes of wheat to stabilize market prices. In February 2011 food grains were sold by Bangladeshi government to subsidize prices to 300,000 most vulnerable civil servants. VAT reduction in edible oil 120,000 tonnes of rice imported during the first quarter of 2011 Rice and sugar export banned Subsidies on input and credit Safety net programmes: Food-for-work programme launched; rationing of up to one million tonnes of rice (procured through imports) India During May-July 2010 more than 3 million tonnes of food grain was distributed by government to targeted poor families, with an additional 457,000 tonnes of food grain, 182,000 tonnes of rice and 274,000 tonnes of wheat distributed to above-poverty-line families. In March 2011 additional storage capacity of food grain was created in rural areas by implementing measures such as subsidies, storehouses, and financial support to private sector investment.

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In April 2011 the government intervened in the market and procured wheat by increasing price by 4.5 percent (purchase price of IRs 11.7 per tonne) to support farmers incomes following a bumper harvest in 2010. Meanwhile, wheat was released from buffer stock. As of February 2011, wheat and rice reserves stood at 19.4 million tonnes and 27.8 million tonnes respectively.

Nepal

Export ban on rice imposed since 2008 and wheat since 2007; quota on sugar export and export ban on onion lifted but imposed a minimum export price. Subsidized inputs Safety net programmes: School feeding programme

100,000 tonnes of rice import planned with financial support from WFP Release of 30,000 tonnes of rice planned for food-deficit mid- and far-western regions Subsidized food items at fair price shops

Pakistan In August 2010 planned exports of two million tonnes of wheat was suspended following summer floods. Increase in food reserves due to good harvest. In December 2010 private sector was granted export licenses for one million tonnes of wheat. In February 2011 wheat procurement target for the year was set at 6.5 million tonnes, with a minimum support price of USD 11 per 40 kg in expectation of a bumper crop. Duty-free import of sugar and continuity to tax exemption on sugar Ban on onion export to India (wheat export ban removed in December 2010) Subsidized food sold through state-owned stores and wheat price was controlled.

Sri Lanka Reduced import duties for milk powder Imported chicken, eggs, onions and coconut to add to the reserve during the last three months of 2011 Non-targeted subsidies through Cooperative Seasonal Price Control for Festivities

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[Source: Compiled from (FAO, June 2011b) and (ADB, 2011)]

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9. Appendix B: South Asian food import and aid Figure B.2: Actual cereal imports (in thousand tonnes) in 2009/10 or 2011
Actual cereals imports ('000 tonnes) in 2009/10 or 2011
4500 4000 3500 3000 2500 2000 1500 1000 500 0

Commerical purchases

Food aid

Total commercial and aid

Figure B.2: Estimated cereals imports (in thousand tonnes) in 2010/11 or 2011
Estimated cereals import ('000 tonnes) in 2010/11 or 2011
5000 4000 3000 2000 1000 0

Total import requirements (excl. re-exports) Food aid allocated, committed or shipped

Total commercial and aid Commercial purchases

Source: Crop Prospects and Food Situation No. 2, June 2011, FAO; Estimates based on information as of mid-May 2011

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10. Appendix C: Intra regional trade in South Asia Table C.1: Intra regional trade Intra regional (SAARC) exports and imports Year SA SA SA agri SA agri

exports/World imports/World exports/World imports/World exports 2003 2004 2005 2006 2007 2008 2009 6.52 6.04 6.34 5.70 5.87 6.68 5.62 imports 4.63 3.35 3.03 2.99 3.18 2.23 2.46 agri exports 15.44 13.26 13.94 14.59 13.49 14.38 12.78 agri imports 14.13 10.33 12.02 15.02 13.35 11.29 8.53

Source: Authors computation using UN COMTRADE database (HS 2000 classification); Agriculture products include chapters 1-23. Table C.2: Intra regional exports of agriculture commodities Intra regional (SAARC) exports (percent of region's export to world) Year Animal & animal products 2003 2004 2005 2006 2007 2008 2009 2.76 3.15 3.78 4.25 3.98 4.32 4.73 19.01 16.04 17.52 14.87 16.04 15.95 13.92 21.80 16.38 14.95 26.41 17.33 16.46 17.20 Vegetable products Food stuff

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Source: Authors computation using UN COMTRADE database (HS 2002 classification); Animal & animal products (Chapters 1-5), vegetable products (Chapters 6-15), food stuff (Chapters 16-23) Table C.3: Intra regional imports of agriculture commodities Intra regional (SAARC) imports (percent of region's export to world) Year Animal & animal products 2003 2004 2005 2006 2007 2008 2009 15.41 12.05 20.83 19.68 16.77 21.22 22.18 12.00 9.59 11.67 10.98 10.82 7.86 6.67 32.54 14.28 11.30 33.64 35.73 37.29 15.61 Vegetable products Food stuff

Source: Authors computation using UN COMTRADE database (HS 2002 classification); Animal & animal products (Chapters 1-5), vegetable products (Chapters 6-15), food stuff (Chapters 16-23)

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11. Appendix D: Food budget Table D.1: Food budget shares in South Asia Food budget shares Country Beverages, Breads, Meat tobacco cereals Percent of total food expenditures Fish Dairy Fats, oils Fruits, Other Total Food Expenditure % of total expenditures Bangladesh Nepal Pakistan Sri Lanka 4.12 9.79 4.38 14.93 50.17 57.61 21.20 21.81 4.38 3.29 7.68 9.21 0.63 3.21 5.36 3.88 4.33 9.58 15.46 14.58 4.41 56.05 57.88 46.99 63.55

vegetables foods

0.71 26.84 10.06 6.67 1.44

17.32 11.80 26.42 14.51

1.78 12.45

Source: USDA, Economic Research Service, using the 1996 ICP data. From the ERS report Cross-Price Elasticities of Demand Across 114 Countries (TB-1925).

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