Asia sets $2.5 bln farm boost, aid in food price fight

By Sebastian Tong and Yoo Choonsik

MADRID (Reuters) - The ADB pledged $2.5 billion in emergency aid and loans in Asian nations hit hardest by soaring food costs as finance chiefs agreed on Tuesday to boost farm output as a long term solution to the crisis.

After four days of talks governments remained split on whether they should use export bans and market intervention to ensure one billion poor Asians living on less than $2 a day do not slip back into hunger and malnutrition.

Finance chiefs called on the Asian Development Bank to take an active role in stabilizing surging food prices in a region that is home to two thirds of the world's poor and risks civil unrest after wheat and rice prices doubled in the last year.

ADB President Haruhiko Kuroda said the Manila-based bank stood ready to act.

"I am pleased to announce that ADB will provide $500 million as immediate budgetary support to the hardest hit countries so that they can bring food to the tables of the vulnerable, poor and needy," he told a news conference, adding that he expected to make the first loans within weeks.

But Kuroda said the best long term solution to painful price spikes was through boosting agricultural output, adding that the bank would double lending to agricultural and natural resource and infrastructure projects to $2 billion in 2009.

"Trade measures or price controls are not efficient ways to combat the food crisis or food price inflation. It distorts the market and could exacerbate the situation in the international grain market," Kuroda told Reuters in an interview earlier on Tuesday.

"In many meetings here in Madrid I have emphasized that the best way to address the immediate difficulty is to strengthen social safety nets through targeted support for the poor rather than generalized food subsidies or trade measures or price controls."

His views were echoed by Japan and many other rich nations among the 67 economies that fund the multilateral lender.

"Price and export controls could remove incentives for farmers to produce more," said Caspar Veldkamp, who headed the Netherlands' delegation. "Food price subsidies may have harmful budgetary consequences and prove to be wasteful."

Rice producers like India and China gained support for export restrictions from poorer ADB members who said they had to guarantee food supplies.

Sri Lanka was among countries that backed market intervention as a short term measure to protect poor families who spend more than half their income on food.

"If you produce the food and don't give it to your people then they're going to get very angry," said Sri Lankan Minister of Enterprise Development and Investment, Sarath Amunugama.

PRICE PRESSURE

Export bans and prices floors established by key rice exporters China, Pakistan, Vietnam and India have increased price volatility and raised uncertainties about future supplies, according to the ADB.