labels: Economy - general
Food price controls may worsen situation, warns Paulson news
14 April 2008

Henry M. PaulsonMumbai: Governments should resist the temptation to try to control soaring food costs through price controls, which would likely make the situation worse, US treasury secretary Henry Paulson has warned.

Such measures were "generally not effective and efficient" at protecting people destined to suffer the most, Paulson said in remarks prepared for the World Bank's development committee meeting.

"They tend to create fiscal burdens and economic distortions," Paulson said.

Paulson's comments follow warnings by World Bank President Robert Zoellick earlier this month that soaring food and energy prices threatened to foster social unrest in an estimated 33 countries.

Zoellick also called on rich countries, including the US, Japan and the European Union, to immediately fill a $500 million funding gap at the United Nations World Food Programme to offer food aid to the world's poorest.

Zoellick had warned that 100 million people in poor countries could be pushed deeper into poverty by spiralling prices. The crisis has also led to food riots in several countries, including Haiti, the Philippines and Egypt.

Paulson said countries suffering "severe negative shifts in the terms of trade due to higher commodity prices, including higher food prices," should focus on policies to control energy use and consider measures to boost agricultural production.

"Governments, however, need to resist the temptation of price controls and consumption subsidies that are methods of protecting vulnerable groups," he said.

The World Bank has also advised countries against price controls to curb food costs, saying they are unlikely to be effective in the longer term.

"Income transfers or food assistance for poor people will work more efficiently and sustainably than more general steps at the national level," World Bank economist Don Mitchell said.

The sharp rise in food prices have led to protests and unrest in many countries, including Egypt, Ivory Coast, Ethiopia, the Philippines and Indonesia. In Haiti, protests last week turned violent, leading to the deaths of five people and the fall of the government.

Many major producing countries such as India, China, Vietnam and Egypt have put restrictions on rice exports.  This has hit importers like Bangladesh, the Philippines and Afghanistan hard.

Global wheat prices have grown 130 per cent; rice prices have risen 74 per cent and corn by 31 per cent even as soya prices rose 87 per cent over the year ended March 2008.


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Food price controls may worsen situation, warns Paulson