Food prices pose new challenges: S&P
Soaring global food prices constitute a negative exogenous shock for numerous rated sovereigns, says Standard & Poor’s in a new report.
By ET Online |
MUMBAI: Soaring global food prices constitute a negative exogenous shock for numerous rated sovereigns, says Standard & Poor���s in a new report.
The report, "Is Food The New Oil? Credit Implications of the Unfolding Food-Price Shock", looks at the food-price problems facing governments around the globe, with a view to assessing sources of vulnerability to credit fundamentals, and how short-term measures to address soaring food costs will be counter productive in the long run.
"Although the global food price rise in itself is unlikely to be the direct cause of adverse rating action, for many sovereigns ongoing high food costs will significantly increase overall susceptibility to negative rating movements by exacerbating already weak external and fiscal positions, or through the potential for political and social unrest", said Agost Benard, of S&P���s Sovereigns and International Public Finance Ratings group.
"Governments around the word will need to bring about significant investment in agriculture and infrastructure to address the problem long term, which, for low-income sovereigns, could mean more recourse to borrowing or increase in aid."
Even countries acting as the world���s breadbaskets are vulnerable to food-price inflation and susceptible to increased political instability if government attempts to capture higher revenues from food exports or secure domestic supply are mismanaged, says the report.
"The case of Argentina illustrates how global food-price rise causes wealth transfers from urban to rural populations, and also the pitfalls for governments in managing this process," adds Benard.
"Policy measures that try to reduce or prevent this transfer will be resisted by producers, potentially igniting political unrest, and leading to smuggling or product diversion that ultimately results in more shortages and higher prices. If the policy response is miscalculated or mishandled, the resulting political and social instability could be more than what an already weak or unpopular government could handle."
The report, "Is Food The New Oil? Credit Implications of the Unfolding Food-Price Shock", looks at the food-price problems facing governments around the globe, with a view to assessing sources of vulnerability to credit fundamentals, and how short-term measures to address soaring food costs will be counter productive in the long run.
"Although the global food price rise in itself is unlikely to be the direct cause of adverse rating action, for many sovereigns ongoing high food costs will significantly increase overall susceptibility to negative rating movements by exacerbating already weak external and fiscal positions, or through the potential for political and social unrest", said Agost Benard, of S&P���s Sovereigns and International Public Finance Ratings group.
"Governments around the word will need to bring about significant investment in agriculture and infrastructure to address the problem long term, which, for low-income sovereigns, could mean more recourse to borrowing or increase in aid."
Even countries acting as the world���s breadbaskets are vulnerable to food-price inflation and susceptible to increased political instability if government attempts to capture higher revenues from food exports or secure domestic supply are mismanaged, says the report.
"The case of Argentina illustrates how global food-price rise causes wealth transfers from urban to rural populations, and also the pitfalls for governments in managing this process," adds Benard.
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"Policy measures that try to reduce or prevent this transfer will be resisted by producers, potentially igniting political unrest, and leading to smuggling or product diversion that ultimately results in more shortages and higher prices. If the policy response is miscalculated or mishandled, the resulting political and social instability could be more than what an already weak or unpopular government could handle."
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