2 - Impact of World Recession on Rural Poverty and Food Security in Southeast Asia: Lessons from the 1997–98 Asian Crisis

Summary

In the past two years the world economy has been hit by one of the most serious recessions in decades. One of the reasons this recession is particularly noteworthy is that it has followed very quickly on the heels of a strong and broad economic boom where growth rates were very high across a range of developing countries. This coincided with a boom in commodity prices, including not only oil and minerals but also food commodities. However, in the third quarter of 2008, the boom reversed into a rapid and equally broadly-based decline in economic activity across the globe, caused most directly by the seizing up of credit markets, and the financial sector more broadly. Simultaneously, commodity prices, again including food prices, declined even more sharply than they had risen.

What has been equally striking, from the perspective of mid-2010, is the apparently rapid recovery from this crisis. Real gross domestic product (GDP) in East Asia by then had risen to levels that correspond to those prior to the crisis. In fact the region has rebounded more quickly and is in stronger economic shape than after the Asian Financial Crisis of 1997–98. The rapid rebound is heavily due to the influence of China in the East Asia aggregate, and when one examines individual country results the situation is more diverse. Thailand, Malaysia, and Cambodia, for example, had contracting economies in 2009. The average for all East Asia, including China, is 7 per cent for 2009, while excluding China gives an average growth of only 1.3 per cent.

Global food prices also rose and have remained high by recent standards. Although food prices generally fell after their spike in 2007–08, they rose again in 2009. Between January and December 2009, the World Bank's food benchmark index rose by 23 per cent. On an average calendar year basis, 2009 prices were lower than 2008 prices, but higher than 2007 prices. This was bad news for the net food-consuming poor in Southeast Asia, particularly as it coincided with the 2009 recession. Just like aggregate economic growth is quite variable by country, recent food price movements also varied by food group. Grains, fats and oils prices spiked between mid-2007 and mid-2008, whereas sugar prices spiked during 2009.