Asia food inflation risks countered by better policy

Asia has dramatically changed.

Amid food inlation risks to Asia such as strong typhoons, weak monsoons and the effect of Ramadan, these are fortunately countered by a positive global outlook and better policy across the region.

According to a research note from HSBC Global Research, first of all, while prices of certain food commodities such as fish, pork and chicken are continuing to rise on the back of rising consumption from an larger middle class, the short-term price dynamic for most cereals, used not only as a staple but also as a feed input for other agricultural undertakings, is favourable.

Moreover, in terms of food reserves and grain stocks, emerging Asia has changed dramatically over the years.

Take rice, for example, the report said. Lessons have been learned from the 1990s and the 2007-08 food crises in Asia, when rice prices tripled in a matter of weeks.

Here's more from HSBC Global Research:

Governments started to build up reserves and since 2008 it is estimated that Asia’s top grain-buying states have accumulated an additional 100m tonnes of rice and 90m tonnes of wheat – often far above official targets.

Thailand is perhaps the most notable example. The country’s rice subsidy scheme started under the former government resulted in substantial financial losses and has created a 30m tonne reserve.

The scheme also saw Thailand lose its position as the world’s primary rice exporter, although it will probably regain the no. 1 spot this year as some stocks were sold at a loss to compensate farmers and the government negotiates deals.

Vietnam, another strong exporter, has also amassed excess reserves on the back of strong consecutive harvests.

These stocks, while problematic for international rice prices, serve as a regional food buffer, and should be able to compensate for lost production (perhaps as a result of an El Niño or other weather-related occurrence) and guard against inflationary pressures.