Food Prices
Why Did Global Food Prices Rise?
For the last 25 years global food prices have been falling, driven by the increased productivity and output of the farm sector worldwide. In 2007, this came to an abrupt end as global food prices soared. By September 2007, the world price of wheat rose to over $400 a ton-the highest ever recorded and up from $200 a ton in May. The price of corn (maize) surged to $175 a ton, some 60 percent above its average for 2006. An index of food prices, adjusted for inflation, which The Economist magazine has kept since 1845, hit its highest level ever in December 2007.
One explanation for rising food prices has been increased demand. The increased demand has been driven by greater food consumption in rapidly developing nations, most notably China and India. Rising consumption of meat, in particular, has driven up demand for grains; it takes eight kilograms of cereals to produce one kilogram of beef, so as demand for meat rises, consumption of grains by cattle surges. Farmers now feed 200 to250 million more tons of grain to their animals than they did 20 years ago, driving up grain prices.
Then there is the issue of bio-fuel subsidies. Both the United States and the European Union have adopted policies to increase production of ethanol and bio-diesel in order to slow down global warming (both products are argued to produce fewer C02 emissions, although exactly how effective they are at doing this is actively debated). In 2000, around 15 million tons of American Corn was turned into ethanol; in 2007 the figure reached 85 million tons. To promote increased production, governments have given subsidies to farmers. In the United States subsidies amount to between $0.29 and $0.36 per litre of ethanol. In Europe the subsidies are as high as $1 a litre. Not surprisingly, the subsidies have created an incentive for farmers to plant more crops that can be turned into bio-fuels (primarily corn and soy beans). This has diverted land away from
For the last 25 years global food prices have been falling, driven by the increased productivity and output of the farm sector worldwide. In 2007, this came to an abrupt end as global food prices soared. By September 2007, the world price of wheat rose to over $400 a ton-the highest ever recorded and up from $200 a ton in May. The price of corn (maize) surged to $175 a ton, some 60 percent above its average for 2006. An index of food prices, adjusted for inflation, which The Economist magazine has kept since 1845, hit its highest level ever in December 2007.
One explanation for rising food prices has been increased demand. The increased demand has been driven by greater food consumption in rapidly developing nations, most notably China and India. Rising consumption of meat, in particular, has driven up demand for grains; it takes eight kilograms of cereals to produce one kilogram of beef, so as demand for meat rises, consumption of grains by cattle surges. Farmers now feed 200 to250 million more tons of grain to their animals than they did 20 years ago, driving up grain prices.
Then there is the issue of bio-fuel subsidies. Both the United States and the European Union have adopted policies to increase production of ethanol and bio-diesel in order to slow down global warming (both products are argued to produce fewer C02 emissions, although exactly how effective they are at doing this is actively debated). In 2000, around 15 million tons of American Corn was turned into ethanol; in 2007 the figure reached 85 million tons. To promote increased production, governments have given subsidies to farmers. In the United States subsidies amount to between $0.29 and $0.36 per litre of ethanol. In Europe the subsidies are as high as $1 a litre. Not surprisingly, the subsidies have created an incentive for farmers to plant more crops that can be turned into bio-fuels (primarily corn and soy beans). This has diverted land away from
References: 1. World Bank, "Food Price Watch" (February 2011), accessed at www.worldbank.org/foodcrisis/food_price_watch_report_feb2011.html, on Feb. 17, 2011. 2 3. FAO Global Information and Early Warning System on Food and Agriculture, "Special Alert: A Severe Winter Drought in the North China Plain May Put Wheat Production at Risk" (Feb. 8, 2011). 4 7. National Family Heath Survey, "Key Indicators for India" (2005-06), accessed at www.nfhsindia.org/pdf/India.pdf, on Feb. 16, 2011. 8 9. UNDP, "Multidimensional Poverty Index," accessed at http://hdr.undp.org/en/media/HDR_2010_EN_Table5_reprint.pdf, on Feb. 17, 2011. 10