Will Asia See a Repeat of the 2008 Food Scare?

Record high prices of corn and soybean brought on by the worst U.S. drought in 56 years may be triggering a sense of de ja vu for Asia concerned about a repeat of the food scare in 2008, but most economists are downplaying those fears, for now.

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The U.S. may account for a third of global corn production, and soybeans are hugely important because, along with corn, it goes into the feed for Asian farm animals such as cattle and pigs, but the two grains do not make up a huge component of headline inflation numbers in the region, economists say.

“How worried should we be? Not overly,” Frederic Neumann, Co-Head of Asian Economics Research at HSBC said in a report on Friday. “Sure, Asia has structural inflation problems. But soy isn’t one of them. And neither is corn nor U.S. wheat. Oil and rice matter much more for food inflation in Asia.”

Rice carries a large weight in Asian CPIbaskets, especially in Southeast Asia, but prices appear to be under control and nowhere close to levels seen in 2008, when the benchmark Thai rice hit $1,000 a metric ton, 40 percent higher than current levels, Neumann said. And oil – which determines the cost of transportation and production – has dropped “sharply” in recent months, he noted, adding that prices are unlikely to return to previous highs.

Neumann still expects inflation in the region, including China and Japan, to head lower this year to 2.5 percent, compared to 2.7 percent in 2011.

Arjuna Mahendran, Head of Investment Strategy at HSBC Private Bank, agrees that as long as prices of energy, “a key commodity component”, are kept in check, inflation should be under control.

“Energy demand in general seems much more subdued because India's only growing 5.5 percent and China's only growing 7-8 percent, a lot less than they were growing even last year,” he said on CNBC Asia’s “Squawk Box".“And that I think means that energy prices should remain subdued and that could be the factor that keeps a lid on inflation taking off on a generalized basis.”

Asia was hit hard in 2007 and 2008 when shortages of foodstuffs, especially rice, led to hoarding and riots. Food inflation hits Asia harder than other regions food make up a greater portion of consumer spending than in other parts of the world. In developing Asia, for example, it makes up 35 percent of consumer prices, compared with about 20 percent in the U.S. and Europe, according to the International Monetary Fund .

The wild card in the outlook for inflation remains in monetary policy, specifically quantitative easingby central banks which could in turn drive new money into commodity markets, Mahendran said.

“The speculative overhang on these commodities prices tends to push them up much faster than they would under normal circumstances,” he said.

Other economists are less sanguine about inflation. Jonathan Barratt, Founder of investment newsletter Barratt's Bulletin, expects more stimulus from central banks to drive already lofty prices higher. Already, rice is pushing six-month highs and oil, after declining over the past few months, have rallied about 10-12 percent in the last two weeks, Barratt said.

“Stimulus which is going to be injected so it’s going to be quite interesting as to how this will play out, because I don’t see there’s too many offsetting forces at the moment other than seeing inflation pick up off the lows we are seeing at the moment,” he told CNBC Asia’s “Squawk Box”.

— By CNBC’s Jean Chua.