Since early 2007, global food prices have increased by 30%, placing the issue of food price inflation as a top priority for policymakers at the local, national, and international level. The price of cereals such as wheat, rice and corn has risen by 50%, while the cost of dairy products, oils, and fats has increased by an even higher percentage (see Figure 1 below).
While rising food prices can have economic impacts across all segments of the population, the results are felt most acutely by the global poor. Nearly three billion people earn less than $2.00 a day and spend, on average, well over one-half of their household income on food. The urban poor, who typically do not produce their own food, are particularly vulnerable to price fluctuations.
Figure 1. FAO Food Price Index: February 2007 - January 2008
Source: FAO, 2008
Food aid agencies are feeling the pinch, too; last week, Josette Sheeran, the head of the United Nations' World Food Program, reported that global food reserves were at their lowest level in 30 years and the agency faces a $500 million shortfall in 2008.
Some of this inflation can be attributed to short-term production shortfalls. But many of factors driving food price increases are more lasting, and their effects are likely to be felt for several years at least. The European Bank for Reconstruction and Development, along with the Food and Agriculture Organization of the United Nations, identified the following root causes for food price inflation in 2007:
- Agricultural subsidies in developed countries that make more efficient production in developing countries unprofitable;
- Decreases in food stocks;
- Rising fuel prices;
- Increased demand for some products, such as meat, particularly in rapidly emerging markets such as China and India;
- Growth in biofuels production (see figure 2 below); and
- Speculation in agricultural commodity markets.
Figure 2: World Ethanol Production, 1975-2005
Rising demand for biofuels, used in both ethanol and biodiesel production, has pushed up prices of commodities such as corn and rapeseed. Around 30% of the United States' corn production will be used to produce biofuels by 2010.
Source: EarthTrends, 2007 using data from Earth Policy Institute, 2006.
Many the causes mentioned above will require major, concerted global action to address. In the meantime, policymakers are considering a variety of more immediate actions. UN Secretary General Ban Ki Moon emphasized the growing importance of investing in a “green revolution” for Africa in a speech this week. Additionally, the EBRD and the FAO convened a panel of experts in London on Monday to explore the potential of increasing agricultural production in eastern Europe. Up to 13 million hectares of agricultural land in countries such as Russia, Kazakhstan, and the Ukraine could potentially be placed back into production.
RELATED LINKS:
BBC News: The Cost of Food, Facts and Figures
Washington Post: UN Warns about High Fuel, Food Costs
EBRD and the FAO: Fighting Food Inflation
EarthTrends Links
Can a Green Revolution Catalyze African Development?
Agricultural Trade Reform and Poverty in the Developing World
