World Food Prices

After falling for nearly half a century, real food prices have been rising since the early 2000s, and spiked in the years 2007-08. Between January 2006 and March 2008, the price of a tonne of wheat climbed from $167 to $481. Similar trends were observed for other major food commodities including maize, rice and palm oil.

While prices have dropped back since then, most international observers (including the OECD (PDF), Food and Agriculture Organisation (FAO) and USDA) predict that food prices ove the next decade will remain higher than the average over the 2000-2005 period. ODI (PDF) estimates that compared to 2005 levels, the price of maize is likely to be higher by 40% in 2016-17, with wheat prices up by 20% and rice by 14%. However, it is also worth noting that in real terms, while food prices have been rising, they are still well below levels that prevailed for most of the last century.Higher food prices invite the question how should EU agricultural policy respond in a way that is coherent with the development objectives of reducing hunger and poverty?

What has caused food prices to rise?

Prices have been propelled by a mix of temporary and permanent factors (PDF):

• Strong food demand from emerging economies
• Urbanisation and growing populations.
• Rising biofuel production
• Rising oil prices
• Financial factors (including the depreciation of the US dollar)
• Adverse weather conditions in major producing countries.
• Flawed Trading Policies
• Commodity speculation

The dangers of rising food prices

Rising food prices have been cited as a causing major social, political, and macroeconomic disruption in many low-income countries as well as contributing to inflationary pressures in the developed world. Poor people in developing countries are mostly net food buyers and spend between 50-70% of their budget on food. As prices rise, they are forced to reduce or skip meals and shift to less nutritious diets. The World Bank has argued that food price spikes could push a further 100 million people into poverty and reduce much of the progress on the MDGs. The FAO has estimated that the price spike was responsible for pushing a further 75 million people into the hungry category..

The opportunities of rising food prices

However, whether higher food commodity prices are a source of food insecurity or not is heavily debated. Rising food prices can either reduce or increase poverty, depending on how poor households earn their income and how they spend it. Falling food prices over the past thirty years failed to produce any marked change in hunger and poverty. Poor farmers in developing countries have been faced with competition from heavily subsidised farming in rich countries and the result was a historical rise in inequality. Because 80% of the world’s poor live in rural areas, rising food prices can in fact offer an opportunity for low income countries to revitalise their agricultural and rural development, especially given the powerful income and employment multiplier effects associated with agricultural-led growth.

The current mismatch between supply and demand for food has its roots partly in the decades-long underinvestment in agriculture in many developing countries and rising food prices can provide the impetus for much needed refocusing on investment in agriculture in developing countries.

Rising food prices and CAP reform

The recent volatility in food prices has pushed food security up the agenda when discussing the future of the CAP, with arguments based on the need to address both global food security and EU food security being used to justify continued support for EU agriculture. Neither argument holds much water. Meeting the growing global demand for food taking into account land, water and environmental considerations will be a challenge. But global hunger is due to the inability of poor people to access food which is available, and the coherent policy for the EU is to assist developing countries to grow the food they need (PDF), rather than pay European farmers to produce it on their behalf. Maintaining Europe's agricultural production capacity is important in a global context, but a better way for Europe to contribute to global food production is through increasing expenditure on agricultural R&D.

The recent volatililty in world market prices has also led some member states to stress the need to preserve farm subsidies in order to boost EU agricultural output to guard against uncertainty on world markets for EU consumers. But EU food security was hardly affected at all by the 2007-08 food crisis, and an open trading system is an important guarantee against risks from domestic production shortfalls.

Links:

FAO, Global Information and Early Warning System on Food and Agriculture
Provides monthly updqtes on global commodity market trends and the food security situation

FAO Initiative on Soaring Food Prices
Documents international responses to the problems caused by higher food prices around the world

European Commission, DG Agriculture and Rural Development Agricultural and food prices web page
Monitors price volatility and discusses the Commission's responses

Euractiv, Global food prices and CAP reform
A survey of views on how trends in global food prices should influence CAP reform

Resources:

Carnegie Endowment for International Peace, Rising Food Prices, Poverty and the Doha Round (PDF), 2008
Paper examining the issues at stake in the Doha Round in light of rising food prices and their impact on global poverty

ODI, Rising Food Prices: A Global Crisis (PDF), 2008
Briefing paper that presents information, analysis and key policy recommendations on rising food prices

OECD, Rising Food Prices: Causes and Consequences (PDF), 2008
Overviews the main factors behind the recent increases in crop prices and the consequences this is likely to have to the global economy.

Chatham House, Rising Food Prices: Drivers and Implications for Development (PDF), 2008
Briefing paper that addresses the key drivers of increasing food prices and the associated policy implications for governments and multilateral institutions.