High oil prices are already a concern in the Pacific region, but the recent surge in world food prices has yet to be fully felt in the Pacific, according to a new Asian Development Bank (ADB) study, “Living with High Prices”.

This lag between developments in mainland Asia and retail outlets in the Pacific provides a small window of opportunity to prepare for high food prices, according to the study prepared by ADB to help regional governments manage the adjustment to high prices.

“Good government policy can maximize wins from high export prices and minimize the losses from higher prices of oil, rice and wheat,” says Director General of ADB’s Pacific Department, Philip Erquiaga. “Poor policy will see opportunities missed and add to the problems facing the Pacific region.”

“Living with High Prices” estimates that recent increases in world prices may cause an additional 5% of low-income households in some Pacific nations to slip into poverty during 2008. The effects of high prices on Timor-Leste and the Fiji Islands are of particular cause for concern.

The study says that increases in local food production will ultimately help reduce food prices in the region. Agriculture, however, has been neglected in recent decades and will take some time to rebuild.

The surge in food prices highlights the importance of ending the neglect of the rural economy. Rural infrastructure and services also need to be rebuilt if the region is to strengthen its resilience to high world food prices.

Supporting rural areas will also maximize the benefits of the recovery in world tree crop prices. Papua New Guinea, Solomon Islands, and Vanuatu are identified as the region’s main winners from higher prices of copra, copra oil, cocoa, and other crops. Remote areas of the Republic of Marshall Islands and Kiribati will also receive some benefit from higher prices for copra and copra oil.

“Living with High Prices” also looks at what regional governments and development partners can do to lessen the problems created by high world crude oil prices. The study concludes that high crude oil prices pose a bigger long-term challenge to the region than high food prices.

The ADB study says actions needed to build resilience to high crude oil prices include encouraging market liberalization in transport, particularly in areas supporting tourism; increasing competitive pressures in fuel importing; and making more use of alternative energy sources and energy efficient practices. The ADB study also says that in the Pacific, fuel taxes are a tax on remoteness, and removing excessive fuel taxes is part of the solution.

“ADB is committed to helping the Pacific face the challenges caused by high prices, in close coordination with our development partners, in line with our comparative advantages and resource availability,” says Mr. Erquiaga.