The current Asian economic crisis threatens to wipe out the gains from recent years of economic growth, poverty alleviation, and human development in many developing Asian countries. It has significantly weakened the capacity of many East Asian countries to keep a sizeable proportion of their populations from falling into abject poverty and severe food deprivation.
During the past two decades, economic growth was the single, most important factor contributing to significant poverty reduction in East Asian countries, especially those in transition from centrally-planned to market economies. The sharp economic contraction in 1998 in some of these countries (particularly Indonesia and Thailand) has dealt a major blow to an otherwise good performance in poverty alleviation during the last quarter of the century.
If the crisis deepens in the economies of South Asia and Indochina, Asian household food insecurity could become an even more serious concern. India and China have the largest concentration of Asia's absolute poor, representing about 60% of the total population. Moreover, recession in this region could easily wipe out recent gains in poverty-reduction efforts, especially if agriculture, which the large majority of the poor are dependent on for income and livelihood, takes a disproportionate role in the subsequent economic adjustment. The step from poverty to sufficiency in these countries is still quite shallow, largely because economic growth has not been as rapid and sustained as that in North East Asian countries.
Between mid-1997 and 1998, the currencies of South Korea, Indonesia, Malaysia, the Philippines, and Thailand fell by 40-80 percent against the U.S. dollar, precipitating a financial and economic crisis, the long-term effects of which are uncertain. The expected growth rates of gross domestic product in the region's economies have been revised sharply downward, into negative territory in most cases. Declining growth rates and depreciating exchange rates may significantly alter the levels of malnutrition, nature of domestic food demand and patterns of trade in the region and throughout the developing world.
In theory, the currency depreciation that occurred should help the agriculture sector. All other things being equal, depreciation raises the domestic prices of tradable goods relative to those of non-tradable goods, thereby enhancing the incentives for sectors producing tradable goods. While this may be true for agriculture in general it is not true for those countries which have developed a livestock sector based on imports, such as has occurred in the livestock poultry sector in Indonesia. Since 70 percent of the inputs for intensive poultry production is feed, the industry will collapse if feed costs rise above a level where profit can be made. As most of the inputs into industrial livestock production are not available domestically and are essentially tradable goods, the depreciation is expected to decrease the capacity of industrial livestock production to contribute to foreign exchange generation and hence to economic recovery. Also, since industrial livestock production is not labor-intensive it does little to ease the adverse impact of the economic downturn in urban areas, not withstanding the reverse flow of labor, mainly unskilled and semi-skilled, from urban to rural areas as urban wages are significantly depressed.
In addition, cuts in government spending can significantly reduce the provision of public goods to services for both urban and rural populations.
Even in rural areas where most of the poor are dependent on agriculture for incomes, the poorest tend to be net buyers of food staples. Thus, the sharp rise in food prices for many of the crisis-affected countries is a serious threat to household food security and to the gains in poverty alleviation during the last quarter of the twentieth century.
Rosegrant and Ringler (1998) assessed the Asian economic crisis and how it would affect cereal and livestock demand, food security and nutrition, trade and poverty to the year 2020.
They said that after more than a decade of rapid economic growth, many East and Southeast Asian countries face the prospect of a long economic slump, and the poor in these countries face a reversal of their halting climb out of poverty. Exports from the developed world will be affected as well.
Although the long-term effects of the crisis on income growth and real exchange-rate depreciation are unclear at this point, making it difficult to assess long-term changes in global food markets and food security, the crisis is likely to have some persistent negative effects. The potential impact on agriculture and nutrition can be gauged by using IFPRI's recently updated global food model, which covers world food production and consumption for 18 agricultural commodities, to compare three scenarios through 2020.
The baseline scenario reflects the economic trends prevailing before the onset of the crisis. In the severe scenario, the short-term effects seen so far in Asia are assumed to worsen significantly. Income growth rates drop to half of pre-crisis levels and domestic agricultural prices rise by 10-30 percent as a result of currency devaluation. In the moderate scenario agricultural commodity prices rise to half the severe-scenario levels and income growth rates almost recover to pre-crisis levels.
Delgado et al (1999) consider livestock as a major economic sector in Asia, the relative importance of which increased greatly prior to the onset of the Asian economic crisis in July 1997, largely due to rapid increases in urban demand. While meat is frequently exported, the share of exports in total production is low (20 percent in the extreme case of Thai poultry). On the other hand, production has rapidly become industrialized, using large amounts of imported cereals and soybeans as feeds.
The Asian economic crisis has been most prominent in Thailand, South Korea, Indonesia, Malaysia, and the Philippines, associated with income compression of the order of 6 to 13 percent, and exchange rate depreciation of the order of 30 percent to date. It began at the start of the second quarter of 1997, and saw rapid economic deterioration through the first quarter of 1998 and some recovery thereafter.
They consider the Asian economic crisis had a major depressing effect on livestock production incentives in the short run. In Thailand, this was manifested through a 28 percent decline in the ratio of domestic meat prices to feed costs from the third quarter of 1997 through the first quarter of 1998. Since March 1998, a gradual recovery has been underway in livestock production incentives. In Thailand, the ratio of domestic meat to feed prices had fully recovered its decline by the end of the first quarter of 1999.
Analysis shows that the main negative influence on incentives to livestock producers during the height of the Asian economic crisis was through the depreciation of the real exchange rate, which raised production costs much faster than returns. The five Asian countries most affected by the crisis have adjusted in the livestock sector through decreases in imports of meat and milk, and especially of feed grains, rather than through increased exports of meat.
Compression of domestic demand was only a secondary explanation of unfavorable incentives from the onset of the crisis until March 1998, although it likely has become more important in a relative sense as producers have adjusted to other feed sources and world prices have sagged. Full recovery for the livestock sector is likely in the next few years only if domestic demand recovers, which is unlikely for the foreseeable future in Indonesia, and may require a little more time in South Korea and Thailand.
Looking at the long-term and in a broader regional context, the demand-driven Livestock Revolution in Asia is fueled by population growth, urbanization, and income growth. By 2020, these forces will dwarf the effects of the 1997 financial crisis in Asia. There are at least as many reasons for being bullish about livestock demand in Asia as there are reasons for seeing lasting stagnation. Yet these projections are based largely on demand growth in Asia itself, so an important caveat in both the medium-run and long-run is that the health of the sector will require a prior resumption of income expansion in urban areas.