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FOOD production costs in South-east Asia may increase by between 30.8 and 58.9 per cent by 2050, if policy measures to achieve net-zero carbon emissions are successfully implemented, according to a report by economic advisory Oxford Economics.

For South-east Asian countries to transition their economy to net zero by 2050, they would have to implement additional taxes and regulations on the use of fossil fuels, which the region is highly reliant on.

This would in turn increase the costs of energy and labour – the two main long-term drivers of food production costs, read the report, released on Wednesday (Dec 11) in collaboration with industry associations Food Industry Asia and the Asean Food and Beverage Alliance.

“The transition risks will not only increase the fuel and electricity bill for producers, but also for transportation, cold chain storage, and warehouse. The higher prices would transmit to labour costs as workers will demand higher wages to keep up with the increased cost of living,” read the report.

Most vulnerable countries

Food prices in Indonesia are most exposed to transition risks, with costs projected to rise by 58.9 per cent by 2050, compared to a baseline scenario where only policies that have been announced are implemented.

This was followed by Vietnam (51.6 per cent), Malaysia (38.9 per cent), Thailand (31.8 per cent) and the Philippines (30.8 per cent), according to the report.

As it is, food prices are already increasing in the region due to extreme weather events resulting from climate change.

The report stated that a 1 per cent increase in average temperatures across these five food-producing markets have increased food producer prices by between 0.96 and 2.17 per cent.

The Philippines was found to be the most vulnerable to rising temperatures. This sensitivity could be because of the country’s exposure to climate-related adverse events such as typhoons, the vulnerability of its agricultural system to weather changes, and weaker infrastructure for price stabilisation.

Indonesia was the second-most vulnerable, with prices increasing by 2 per cent for a 1 per cent increase in average temperature, followed by Malaysia (1.4 per cent), Thailand (1.31 per cent) and Vietnam (0.96 per cent).

With governments of the Association of Southeast Asian Nations under fiscal pressure as they deal with challenges resulting from the Covid-19 pandemic, as well as the slowdown in global demand, new foreign direct investment is key to drive transformation of the region’s food production system, said the report.

Foreign investment partnerships

By working with foreign direct investment firms as business or trade partners, local companies can pick up new expertise and knowledge, such as in climate-smart agriculture. This could lead to increased efficiency and productivity, as well as global competitiveness for local businesses.

Such partnerships also help unlock broader market access through established international networks, enabling export diversification and revenue growth for Asean countries.

“However, maximising these benefits will require authorities to address key regulatory issues related to foreign ownership, keeping a fair and level playing-field as well as open trade regimes, proactively providing administrative, operational, and strategic assistance to existing investors, and strengthening industrial linkages through supporting a competitive domestic industry,” read the report.

The report also calls on development partners to help Asean countries mitigate the risk by investing in climate-resilient agriculture, water management systems, as well as early warning systems for extreme weather events and natural disasters.

They can also play a pivotal role in supporting the transition to net-zero emissions in the agricultural and food sector by providing financial assistance and technical expertise to accelerate investments in renewable energy in these economies.

This is because Asean’s food production sector is becoming more integrated with the global production network, as the share of imports from the region rose from 6.6 per cent in 2000 to 9.1 per cent in 2021.

“Rising food prices in Asia also create concerns for the costs of living globally… In this context, interventions to contain food prices in Asean may also contribute towards mitigating the inflation uplift for the rest of the world economy,” read the report.