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MANILA: The era of cheap food for Asia is over as surging demand, supply problems and the growing production of biofuels will keep food prices high, the Asian Development Bank (ADB) warned on Tuesday.
In its latest Asia Economic Monitor report, the Manila-based lender warned that while previous food price surges were "cyclical and temporary," the higher prices now being seen were caused by permanent changes.
"This time, the impetus appears to come from persistently rising demand... primarily from rapidly-growing emerging market economies, suggesting that there is a structural and permanent trend at work," the report said.
The ADB cited the average 7.4 per cent growth in gross domestic product (GDP) in Asia since 2000, saying it had created a "structural shift in demand, particularly for food."
Higher incomes have resulted in increased food consumption and a greater demand for meat, which bolsters the need for grain and feed stock.
This shift comes as agricultural productivity remains low or stagnant, with production unable to meet the demand due to low capitalisation and underinvestment in agricultural research and development, the bank said.
Growing urbanisation has also created competing demands for land and water, while rising energy prices have increased the costs of fertiliser, irrigation and food transport by 30-50 per cent in the past year, it said.
Production of biofuels in Europe and the United States, frequently supported by government subsidies, have also driven up the prices of agricultural commodities such as corn, forcing increased use of substitutes like soybean and palm oil.
The ADB said public hoarding, through export bans and restrictions in China, Thailand and Vietnam, and panic-buying in the Philippines, had contributed to the price pressures.
Because only 10 per cent of total rice production is traded internationally, any news of supply disruptions, especially in big producer countries such as Vietnam and Thailand, quickly set off price spikes, the bank said.
Strong economic growth is likely to keep demand on the rise, while biofuel production is expected to grow.
News of food price increases comes as the Asian financial body also stated that it has cut its 2009 growth forecast for the region's developing economies to 7.6 per cent, citing tighter credit and soaring food and energy costs.
The bank trimmed its previous growth forecast made in April of 7.8 per cent, and said actual growth could be slowed even more if either inflation or the US economic slowdown is worse than expected.
It maintained the 2008 growth forecast for the region at 7.6 per cent.
- AFP/yb
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