Rising Global Food Prices

Factors contributed to rising food price

2.1 Demand side factors:

 As there is a rising demand for meat in the fast growing economies countries such as China and India, this brought by the rising demand of grain, as large amount of grain are needed to feed chickens, pigs and cows to produce meat in the market. There is a derived demand between grain and meat, in which an increase demand for meat leads to a rise in demand for grain, which driven up the price of grains.

 Due to the rapid economic growth in country, many country has transformed its economic structure from manufacturing to knowledge-based economy, which people prefer to leaving their home and work in urban area than farming in rural area. This causes a fall in domestic food production in other words decrease the supply of domestic food which driven up the food prices.

 In recent years, there is an increase in demand for bio-fuels, because bio-fuels is a kind of renewable energy which is good for the environment that will only convert into carbon dioxide and water at the end and it can also reduce the consumption of natural resources like coal and fossil fuel which might used up one day. However, using bio-fuels causes another problem---driving up the food price. As a rise in demand for grain for bio-fuels production makes less grain available for food processing and leads to a fall on supply of grain for food processing.

2.2 Supply side factors:

 The 2007-08 food crisis, when the surge in food costs sparked riots across developing countries, had its roots in a series of droughts around the world, including Argentina and Vietnam. [1] And extreme weather conditions 2008 and 2009, such as prolonged drought in parts of India, Australia and southern Africa and unexpected frosts in parts in China mentioned in the article given, all these natural disaster brought a huge impact on crops, that resulted in poor harvest and serious drop in supply for food which soars food prices.

 Global stockpiles of grains were at a record low level, meaning that supplies could not be released onto the market to reduce price instability, which the supply for food remains low that keeps the food prices high.
How factors affect the market for food crops

a. The increased demand for food crops for bio fuels

In the early 2000s, 20 million tonnes of US maize went to ethanol plants. In 2007, 80 million tonnes were delivered --- a figure expected to rise to 100 million by 2010, driven in large part by the Renewable Fuel Standard that requires 28 Billion liters of fuel in the US to come from alternative sources by 2012.
Demand for bio-fuels encourages the use of land for feedstock and it is no coincidence that feedstock prices are rising. Maize prices doubles between 2006 and 2008,while palm oil prices rose 2.5 times. IFPRI's IMPACT model predicts that maize prices will rise by 26% by2020 under current plans for bio-fuels production, and by 72% with drastic expansion. [2]
There is a composite demand in demand for grains for bio-fuel production and in demand for grains for food. As a rise in demand for grain for bio-fuels production makes less grain available for food processing and leads to a fall on supply of grain for food processing.
b. The increased consumption of meat in China and India

 Growing incomes in countries such as China and India mean rising demand for meat. OECD(Organization for Economic Co-operation and development) and FAO(Food and Agriculture Organization) forecast that in non-OECD countries consumption of meat and dairy produce will rise by up to 2.4% s year between 2007 and 2016 (von Braun,2007). [2]
As there is a derived demand between grain and meat, in which an increase demand for meat leads to a rise in demand for grain.