| The global economy is in the midst of the broadest and most buoyant commodity price boom since the early 1970s. Against the backdrop of strong global growth in 2004–07, prices of many commodities have been booming. Oil prices in particular have risen from $30 a barrel in early 2003 to around $140 by end-June, some 35 percent above the earlier record high in real terms in 1979. Prices of food commodities only started booming in 2006—much later than those of oil, metals, and other minerals—and are generally still far below their 1970s highs. Among food prices, those of grains, edible oil, and protein meals accounted for the bulk of the increase in the IMF’s overall price index.|
Food and oil price surge hurting poorest countries the most
IMF study shows some countries at a tipping point
Strauss-Kahn calls for broad cooperative approach
Some countries were now at “a tipping point” because of the double impact of rising food and oil prices, IMF Managing Director Dominique Strauss-Kahn warned on Tuesday. The surge in global food and oil prices could “severely weaken” the economies of up to 75 developing countries, including Pakistan and Indonesia, the International Monetary Fund said in its first broad survey of the crisis.
The impact of surging oil and food prices is being felt globally but is most acute for import-dependent poor and middle-income countries confronted by balance of payments problems, higher inflation, and worsening poverty, a new IMF study warns.
Analyzing the macroeconomic policy challenges arising from the price surges, the study argues that many governments will have to adjust policies in response to the price shock while the international community will need to do its share to address this global problem.
In advanced countries higher food and fuel prices are reducing people's living standards and making it more difficult for governments and central banks to support growth while containing inflation. In emerging economies, and especially in some low-income countries, the stakes are even higher. For the very poor, high food prices can mean deep poverty, hunger, and malnutrition (see "Commodity Price Surge Boosting Inflation, Hitting Budgets").
"Some countries really are at a tipping point," said IMF Managing Director Dominique Strauss-Kahn at the release of the study based on information and analysis by IMF economists working on 162 countries.
The IMF says that the adverse balance of payments impact of rising prices between January 2007 and April 2008 for poor importing countries could exceed $37.1bn – 2.7 per cent of the countries’ annual gross domestic product.
Commodity prices rose more than 30% in the first half of the year, boosted by record oil and food costs.
The price of crude oil rose 48% in 2008 and it hit a new record of $143.67 a barrel on Monday. The price rose 38% between April and June, the biggest quarterly increase in nine years.
“The global economy is in the midst of the broadest and most buoyant commodity price boom since the early 1970s,”the IMF said. Mark Plant, Deputy Director of IMF Policy Development, warned: “High prices are here to stay.”
The price of soyabean – a key source of food oil and proteins for some countries – on Tuesday rose to a new high of $16.20¼ a bushel, an increase of about 45% since January.
Global approach needed
"If food prices rise further and oil prices stay the same, some governments will no longer be able to feed their people and at the same time maintain stability in their economies. They need good policy options and they need help from the international community. Their challenge is ours. It is to ensure adequate food supplies while preserving the poverty-reducing benefits derived in recent years from faster growth, low inflation, and better budget and balance of payments positions."
Strauss-Kahn said the findings of the study underscored the need for a broad cooperative approach involving the countries affected, donors, and international organizations to cope with the effects of high prices.
"Working closely with our member countries, the Fund has been actively involved in providing advice and financial support to address their urgent concerns and help mitigate the impact of this crisis," he said. "Every country is different and exact policy prescriptions will vary considerably. But the universal challenge for all poor and middle-income countries is to find ways to feed the hungry while maintaining hard-won macroeconomic stability."
Price surge impacts
Key findings of the multi-country survey—Food and Fuel Prices—Recent Developments, Macroeconomic Impact, and Policy Responses—which is the first broad assessment of the impact of the price rises, include:
• Higher food prices have cost a group of 33 poor net food importers $2.3 billion, or 0.5 percent of 2007 annual GDP, since January 2007. In the same period, the effect of rising oil prices on 59 low-income net oil importers was $35.8 billion, or 2.2 percent of their GDP (see slideshow).
• Annual food price inflation for 120 low-income and emerging market countries rose to 12 percent at the end of March 2008 from 10 percent three months earlier, while fuel prices accelerated to 9 percent from 6.7 percent in the same period. Preliminary data indicate the problem is worsening.
• Poor countries that are highly dependent on food imports are particularly vulnerable to rising food prices. The share of household spending on food in emerging and developing economies typically exceeds 50 percent. The study found that low-income households are the most affected by food price inflation and warned that the share of undernourished in developing countries could rise rapidly above the current 40 percent of total population (see "Commodity Price Spiral Taking Toll on African Economies").
Oil and food prices are expected to stay at high levels. Supply has been slow to respond to rising demand for commodities, which was largely the result of rapid economic growth in emerging and developing economies [see "Oil and Food Prices Expected to Ease Only Moderately"].
The IMF has been working closely with its membership on fiscal, monetary and exchange rate, trade, and other policy measures to alleviate the effects of higher prices [see "Policy Response: How Countries Can Cope"].
It also says that it stands ready to help with balance-of-payments support, and has already provided additional financial assistance to seven low-income countries through the concessional Poverty Reduction and Growth Facility. It is also streamlining the Exogenous Shocks Facility to make it more useful to IMF members, and stands ready to provide support for middle-income countries through Stand-By Arrangements.