PGR News from the Pacific

Posted 12:42 PM by Tevita

High Food, Fuel Prices a Threat where protection limited : IMF

From : PACNEWS

Pacific Islands particularly vulnerable to swings in commodity prices
*Inflation fuels concern in islands due to large social implications
*High food, fuel prices risk undermining past gains in region's poverty reduction

Inflation has been rising in the Pacific Islands on the back of strong increases in commodity prices. Even though commodity prices have declined from recent peaks, food and fuel prices are still above historical levels and remain a concern in the islands as most have only limited social protection systems.

Headline inflation in the islands has picked up since end-2007 beyond most central banks' comfort zone (see Chart 1). The inflation seems largely imported: Local fuel prices have increased steadily since December 2007.

As of September 2008, the pass-through of international gasoline prices to domestic retail prices has been complete for Fiji, Palau, Papua New Guinea, Samoa, the Solomon Islands, and Timor-Leste.

Food price inflation has also increased substantially. The large share of food in the various consumer price index baskets has magnified the impact. Moreover, because of low income levels, much of the food basket includes products that are unprocessed or have little value added, causing a relatively high pass-through of increases in imported food prices. This is due to a low elasticity of demand for these products compared to those with higher value added.

Higher food and fuel costs are a serious issue in the Pacific Islands as pressure is put on household budgets. Rising fuel and food costs put pressure on household budgets. Food-related expenditure is a large share of household spending. The food share in total household spending is on average 50 percent for these islands—about twice as much as in the emerging markets.

Demand pressures

There are also signs of home-grown demand pressures. Credit growth remains high and excess liquidity pervasive in Papua New Guinea and the Solomon Islands. Fiscal policies appear to have turned expansionary in the Solomon Islands, Timor-Leste, and Vanuatu.

Core inflation has already started to trend up. Second-round effects are emerging in Papua New Guinea, the Solomon Islands, Timor-Leste, and Tonga, indicating that inflation has become more entrenched. Higher input costs (of animal feed and fertilizer, in addition to energy) have created upstream pressures on prices. Wage pressures are mounting, notably in Papua New Guinea and the Solomon Islands.

Balance of payments impact

The impact of the higher commodity prices on the Pacific islands' domestic and external balances has been uneven. Most of the islands rely heavily on imports—mostly of food and fuel (see Chart 2)—while their export base remains narrow. As a result, their external balances are vulnerable to commodity price spikes. The Pacific island countries rely almost exclusively on oil-based fuel for their energy needs, limiting the scope for substitution in production and consumption.

Net food and oil importers such as Fiji, Kiribati, Samoa, and Tonga have been hit the hardest and these countries are currently facing wider current account deficits. The Marshall Islands have received an emergency foreign loan to support the domestic energy



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Box 77 Nausori Fiji Islands Tel: (679) 3477044 Fax: (679) 3477546-400262 Email: apisainu@yahoo.com Dr Maurice Wong Service du Developpement Rural B.P. 100 Papeete Tahiti 98713 French Polynesia Tel: (689) 42 81 44 Fax: (689) 42 08 31 Email: maurice.wong@rural.gov.pf Mr Tianeti Beenna Ioane Head, Research Section Division of Agriculture Ministry of Environment, Lands and Agricultural Development P.O. Box 267 Tarawa Kiribati Tel: (686) 28096-28108-28080 Fax: (686) 28121 Email : agriculture@tskl.net.ki; Beenna_ti@yahoo.com Mr Frederick Muller Secretary Ministry of Resources & Development P.O. Box 1727 Majuro 96960 Marshall Islands Tel: (692) 6253206 Fax: (692) 6257471 Email: rndsec@ntamar.net Mr Herman Francisco Director Bureau of Agriculture Ministry of Resources & Development P.O. Box 460 Koror 96940 Palau Tel: (680) 4881517 Fax: (680) 4881725 Email: bnrd@pnccwg.palaunet.com Ms Rosa Kambuou Principal Scientist PGR NARI Dry Lowlands Programme Laloki Agricultural Research Station P.O. Box 1828 Boroko National Capital District Papua New Guinea Tel: (675) 3235511 Fax: (675) 3234733 Email: kambuou@global.net.pg Ms Laisene Samuelu Principal Crop Development Officer Crops Division Ministry of Agriculture, Forests, Fisheries & Meteorology P.O. Box 1874 Apia Samoa Tel: (685) 23416-20605 Fax: (685) 20607-23996 Email: lsamuelu@lesamoa.net Mr Jimi Saelea Director of Research Department of Agriculture and Livestock P.O. Box G13 Honiara Guadalcanal Solomon Islands Tel: (677) 27987 Mr Tony Jansen Planting Materials Network Kastom Gaden Association Burns Creek, Honiara P.O. Box 742 Honiara Solomon Islands Tel: (677) 39551 Email: kastomgaden@solomon.com.sb Mr Finao Pole Head of Research Ministry of Agriculture & Forests P.O. Box 14 Nuku'alofa Tonga Tel: (676) 23038 Fax: (676) 24271 Email: thaangana@hotmail.com Mr Frazer Bule Lehi Head of Research Department of Agriculture & Rural Development Private Mail Bag 040 Port Vila Vanuatu Tel: (678) 22525 Fax: (678) 25265 Email: flehi@hotmail.com Other links Other CROP agencies Forum Secretariat University of the South Pacific SPREP Pacific biodiversity Biodiversity hotspots Breadfruit Institute Hawaiian native plants Intellectual property rights Nature Conservancy PBIF PestNet SIDS WWF South Pacific Program Other Pacific organizations Foundation of the Peoples of the South Pacific Micronesian Seminar Te Puna web directory Pacific news Cafe Pacific CocoNET Wireless Island Directory Pacific Islands News Pacific Islands Report Pacific Islands Travel Pacific Time South Pacific travel Time Pacific Interested in GIS? DIVA-GIS	Wednesday, October 22, 2008 Posted 12:42 PM by Tevita High Food, Fuel Prices a Threat where protection limited : IMF From : PACNEWS Pacific Islands particularly vulnerable to swings in commodity prices Inflation fuels concern in islands due to large social implications High food, fuel prices risk undermining past gains in region's poverty reduction Inflation has been rising in the Pacific Islands on the back of strong increases in commodity prices. Even though commodity prices have declined from recent peaks, food and fuel prices are still above historical levels and remain a concern in the islands as most have only limited social protection systems. Headline inflation in the islands has picked up since end-2007 beyond most central banks' comfort zone (see Chart 1). The inflation seems largely imported: Local fuel prices have increased steadily since December 2007. As of September 2008, the pass-through of international gasoline prices to domestic retail prices has been complete for Fiji, Palau, Papua New Guinea, Samoa, the Solomon Islands, and Timor-Leste. Food price inflation has also increased substantially. The large share of food in the various consumer price index baskets has magnified the impact. Moreover, because of low income levels, much of the food basket includes products that are unprocessed or have little value added, causing a relatively high pass-through of increases in imported food prices. This is due to a low elasticity of demand for these products compared to those with higher value added. Higher food and fuel costs are a serious issue in the Pacific Islands as pressure is put on household budgets. Rising fuel and food costs put pressure on household budgets. Food-related expenditure is a large share of household spending. The food share in total household spending is on average 50 percent for these islands—about twice as much as in the emerging markets. Demand pressures There are also signs of home-grown demand pressures. Credit growth remains high and excess liquidity pervasive in Papua New Guinea and the Solomon Islands. Fiscal policies appear to have turned expansionary in the Solomon Islands, Timor-Leste, and Vanuatu. Core inflation has already started to trend up. Second-round effects are emerging in Papua New Guinea, the Solomon Islands, Timor-Leste, and Tonga, indicating that inflation has become more entrenched. Higher input costs (of animal feed and fertilizer, in addition to energy) have created upstream pressures on prices. Wage pressures are mounting, notably in Papua New Guinea and the Solomon Islands. Balance of payments impact The impact of the higher commodity prices on the Pacific islands' domestic and external balances has been uneven. Most of the islands rely heavily on imports—mostly of food and fuel (see Chart 2)—while their export base remains narrow. As a result, their external balances are vulnerable to commodity price spikes. The Pacific island countries rely almost exclusively on oil-based fuel for their energy needs, limiting the scope for substitution in production and consumption. Net food and oil importers such as Fiji, Kiribati, Samoa, and Tonga have been hit the hardest and these countries are currently facing wider current account deficits. The Marshall Islands have received an emergency foreign loan to support the domestic energy * Comments: Post a Comment	Archive October 2002 November 2002 December 2002 January 2003 February 2003 March 2003 April 2003 May 2003 June 2003 July 2003 August 2003 September 2003 October 2003 November 2003 December 2003 January 2004 February 2004 March 2004 April 2004 May 2004 June 2004 July 2004 August 2004 September 2004 October 2004 November 2004 December 2004 January 2005 February 2005 March 2005 April 2005 May 2005 June 2005 July 2005 August 2005 September 2005 October 2005 November 2005 December 2005 January 2006 February 2006 March 2006 April 2006 May 2006 June 2006 July 2006 August 2006 September 2006 October 2006 November 2006 December 2006 January 2007 February 2007 March 2007 April 2007 May 2007 June 2007 July 2007 August 2007 September 2007 October 2007 November 2007 December 2007 January 2008 February 2008 March 2008 April 2008 May 2008 June 2008 July 2008 August 2008 September 2008 October 2008 November 2008 December 2008 January 2009 February 2009 March 2009 April 2009 May 2009 June 2009 July 2009 August 2009 September 2009 October 2009 November 2009 January 2010 RSS Feed Alternative feed Contact Tevita Something new: Agrobiodiversity Weblog: For discussions of conservation and sustainable use of the genetic resources of crops, livestock and their wild relatives. 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