Opinion

Soaring food prices may upend Asia

Forget Egypt for a moment. If you want to see how extreme the effects of surging food prices are becoming, look to wealthy Japan.

So big are the increases that economists are buzzing about them pushing deflationary Japan toward inflation. Yes, rising costs for commodities such as wheat, corn and coffee might do what trillions of dollars of central-bank liquidity couldn’t.

Yet the economic consequences of food prices pale in comparison with the social ones. Nowhere could the fallout be greater than Asia, where a critical mass of those living on less than $2 a day reside. It might have major implications for Asia’s debt outlook. It may have even bigger ones for leaders hoping to keep the peace and avoid mass protests.

New York University economist Nouriel Roubini, who predicted the US financial crisis, says surging food and energy costs are stoking emerging-market inflation that’s serious enough to topple governments. Hosni Mubarak can attest to that.

The United Nations reckons countries spent at least $1 trillion on food imports in 2010, with the poorest paying as much as 20 percent more than in 2009. These increases are just getting started. In January, world food prices rose to another record on higher dairy, sugar and grain costs.

Events in Egypt are a graphic example of how people living close to the edge can get motivated in a hurry to demand change. Keeping that rage bottled in the age of Twitter, YouTube and Facebook won’t be easy. Hence Roubini’s concerns about geopolitical crises.

There’s an extreme irony in the timing of all this. It’s coming as the world is becoming a heavier place. Obesity rates have almost doubled since 1980 and almost 10 percent of humanity was seriously overweight in 2008, according to the medical journal The Lancet. People have never been fatter at the same time when food prices have never been so high.

The Westernization of Asia’s diet is partly behind the rise in food costs. Rapid growth, rising incomes, growing populations and urbanization are conspiring to shift eating habits away from the staples of old toward livestock and dairy products.

The growing pains inherent in shifting consumption patterns will be especially acute in Asia, which will have another 140 million mouths to feed over the next four years. Add that to almost 3 billion people in the fast-growing region and you have a recipe for booming demand.

China’s size and scope means it will be buying up ever-growing chunks of the world’s food supply. As the yuan rises, so will China’s ability to outbid everyone else. Increased trade tensions are inevitable and it will show the futility of food subsidies. Prices will rise as long as consumption does, so it’s really a matter of pouring money down the drain.

China also shows how changing weather will bump up against rising living standards. Severe droughts are imperiling wheat crops in the world’s largest producer. It’s creating shortages of drinking water both for China’s 1.3 billion people and livestock. It’s a reminder that water is the next oil. Governments will be scouring the globe for it before long.

Rising food prices will complicate things for China’s central bank — also for India, Indonesia, the Philippines and less developed economies from Pakistan to Vietnam.

What’s killing households surviving on a few dollars a day is price volatility. If you spend almost half of your income to fill bellies, a 10 percent surge in cooking oil, wheat or chili peppers is devastating. It’s hard enough to pay rent and handle health-care costs today, never mind investing in education.

Governments need to get busy softening the blow, even at the expense of rattling the folks at Standard & Poor’s and Moody’s Investors Service. Otherwise, they’ll have a bigger crisis on their hands than voters or investors alike can stomach.

William Pesek is a Bloomberg News columnist. © 2011, Bloomberg News