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Are food price controls on the horizon?

As food prices soar, more nations are falling back on an old--and potentially hazardous--response: price controls. Last month, China said it would require producers of pork, eggs and other farm goods to seek government permission before raising prices. When producers do seek permission, it is denied, market participants say. Thailand is taking similar steps on instant noodles and cooking oil, while Russia is trying to cap prices on certain types of bread, eggs and milk.

Elsewhere, Mexico is trying to control the price of tortillas, and Venezuela is capping prices on staples including milk and sugar. Malaysia is setting up a National Price Council to monitor food costs and is planning stockpiles of major foods, as well as a 24-hour hot line for consumers to vent about food costs.

These measures reflect the mounting pressure on developing economies as food costs rise sharply. Food-price inflation is running at an 11 percent annual rate in major developing countries, up from about 4.5 percent in 2006, according to Bank of America Corp. The price rises partly reflect increased demand from emerging markets and higher oil prices, which drive up the cost of growing and transporting food.

Economists warn that price controls encourage hoarding and can lead to supply shortfalls, fueling unrest. Perhaps the biggest disadvantage of price controls, however, is that they short-circuit potential changes in behavior by producers and consumers that might damp the underlying causes of inflation. If price controls are kept in place too long, economists say, odds increase for a precipitous and destabilizing jump in prices.
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Publication:Food & Drink Weekly
Date:Feb 11, 2008
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