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Take long-term steps against price shocks: analysts

News Published: Sunday, Jan 23, 2011

Sunday, 23 January 2011 06:13

Take long-term steps against price shocks: analysts

Star Business Report

South Asian countries should take up long-term and sound policy measures instead of short-term steps popular among political parties to counter food price shocks, experts said yesterday.

The observations came at the launch of the book “Managing Food Price Inflation in South Asia” at Policy Research Institute of Bangladesh (PRI) in the city.

PRI Vice Chairman Sadiq Ahmed and World Bank Senior Agriculture Economist Hans GP Jansen wrote the book.

Mashiur Rahman, economic adviser to the prime minister, said the government's response in the past, irrespective of parties in power, was to address only immediate problems.

“One of the reasons was that the government's resources were not only limited in terms of money but also in knowledge to take long-term policies or programmes. Secondly, any political government is receptive to immediate problems, as it can consider implementing a policy only if it can win the next polls.”

“Elections being very unpredictable sometimes, one tends to work towards shaping election results to suit own aspirations rather than working to achieve long-term results pertaining to the economic policies,” he said.

Rahman said the government has introduced open-market sales of staples on a large scale and food ration to government employees to help them absorb the price shocks.

The policymaker urged the development partners to provide assistance where it is required. “Our major donors have turned away from providing adequate resources for irrigation, water resources management, agriculture and power,” he said.

“The government has been lobbying for a long time with the donors for providing adequate resources in the critical sectors. Unless investment resources go down to where they should go you are unlikely to help the development of the country,” the adviser said.

PRI Chairman Zaidi Sattar, while presiding over the event, said prices of essentials are showing signs of resurgence, as has been evident in 2007-08 in Bangladesh. “Prices of commodities from food grains to petroleum to industrial raw materials have since gone up 20-25 percent.”

“This will create an adverse impact on the region, as South Asia has one of the biggest concentrations of poor people.”

He cautioned the government against price hikes, which could be critical in the next few months and that sound policies will be required to address the situation.

Former finance minister M Syeduzzaman said programmes to address the food crisis should be country-specific. He also lambasted development partners for failing to honour words of promises they made to help the poor countries.

Sadiq Ahmed said food price inflation is not a one-off phenomenon rather it has been a long-term challenge. “But most South Asian countries have resorted to short-term solutions to face food crisis challenges like reducing burden on the poor for immediate political gains.”

“They did not take steps to address the issue as a fundamental challenge. They took the challenge as a one-off event and tended to relax when food prices eased down globally.”

“But these are recurrent factors, which have to be met through long-term policies,” said Ahmed.

Jansen said most food prices have not returned to the 2006 levels, especially in the domestic market of any country. “Most South Asian countries are facing higher surge in prices of commodities due to price hike in global market coupled with serious droughts in countries such as Afghanistan.”

He said the price shock in 2007-08 was driven by factors such as policy failures, financial speculation and supply-side constraints. “In 2010-11, supply-side constraints such as extreme weather conditions are active, demand growth is outrunning supplies and there are also policy failures evident.”

Allocation of public investments and sound policies are essential for increasing farm productivity, said Jansen.

Director General of Bangladesh Institute of Development Studies MK Mujeri said the impact of food price rise is most evident on poor people as they spend most of their earnings on food.

PRI Executive Director Ahsan H Mansur said: “The prices of food items would go up globally whether we like it or not. So the prices at domestic level have to be realigned at national level as well as with global prices.”

He urged the policymakers to engage in dialogue with India for ensuring minimum adequate supplies.

Economist Rizwanul Islam said agricultural productivity has to be increased to counter food crisis. “Stocks of food are extremely important, so there must be both local and global efforts for building food stocks for any country.”