Asian Development Bank (ADB) said major direct impact of persistent higher food prices in South Asia to have adverse impact on growth as it reduces real income consumption, saving and investment. 

Interest rate tightening as policy response to control inflation would reduce aggregate demand and lead to further economic slowdown. 

Implementation of food subsidies and other social safety net programmes are likely to increase current expenditure and worsen the fiscal deficit. 

In particular Bhutan, Sri Lanka, India, Pakistan and Maldives, which already have relatively high fiscal deficits, according to ADB South Asia Working Paper Series, ‘Food Price Escalation in South Asia-Serious and Growing Concern’, released on Monday.

The ADB Working paper pointed out South Asia is arguably the most vulnerable region to increasing food inflation given the large segment of the population living below or near the poverty line. 

This paper deals with the problems related to food price inflation in South Asia in a comprehensive manner. It presents an in-depth empirical analysis of the possible factors that could explain the increase in food inflation and discusses the impact of food price inflation on poverty and macroeconomic stability in South Asia. The paper proposes some practical policies to address the situation, including how regionalism may be a solution to food inflation.

According to it South Asian countries policy response during 2010-11 mitigating the impact on increase in the prices of essential items, Pakistan took five steps including reduced taxes on food items, increased supply of food item in the market, price controls were adopted, subsidies were given and food aid was arranged to mitigating impact of high prices of food on poor. 

10 percent increase in food prices increases numbers of poor by 2.2 percent of the population or 3.47 million poor in total number of poor in the country. 20 percent increase in food prices increases numbers of poor by 4.5 percent of the population or 6.9 million poor in total number of poor in the country. 30 percent increase in food prices increases numbers of poor by 6.7 percent of the population or 10.4 million poor in total number of poor in the country. Rice prices in Pakistan have recorded the highest growth increasing by more than 100 percent during this same period, in contrast to the less than 100 percent for the other countries. 

In South Asia, if India (2nd largest global rice producer) and Pakistan (7th largest global wheat producer), could reach world yield averages in rice and wheat, respectively, this would represent an important contribution to increasing global and regional supplies.

South Asia has moved along similar lines as ASEAN+3 by establishing the SAARC Food Bank (SFB) on April 3, 2007. The agreement, which superseded the Agreement on Establishing the SAARC Food Security Reserve, has two objectives-to act as a regional food security reserve for the SAARC member countries during normal times, food shortages and emergencies and to provide regional support to national food security efforts, foster inter-country partnerships and regional integration and tackle regional food shortages through collective action. 

Under the agreement, the food bank has been authorised to start functioning with a total reserve of 241,580 tonnes of food grains, of which India, Pakistan, Bangladesh, Nepal, Sri Lanka, Afghanistan, Bhutan and Maldives are to contribute.

However, SFB is not yet able to reserve adequate food grains to ensure regional food security. 

At present, around 243,000 tonnes of food grains-153,000 tonnes in India, 40,000 tonnes each in Bangladesh and Pakistan, 4,000 tonnes each in Nepal and Sri Lanka, 1,200 tonnes in Afghanistan, 200 tonnes in Bhutan and 180 tonnes in Maldives are available with the SFB. 

During the fourth meeting of the SFB in Dhaka in 2010 it was proposed to increase the strategic reserve at the SFB to 400,000 tonnes from the present 243,000 tonnes, which may later be increased to one million tonnes. 

This paper clearly brings out the causes and macroeconomic ramifications of persisting food price inflation in South Asia. Unless controlled in a sustained manner, food price inflation will have serious implications for growth, poverty and inequality.