In their new Research «Food Prices: Drivers and Welfare Impacts in Emerging Market Economies» SIEMS experts offer a preliminary diagnostic of some of the important factors which may have contributed to the immediate crisis. Some of these factors are more immediate and possibly short-term in nature while other factors will impact countries’ food security in the medium- to longer-term.
The Figure below summarizes the content of this article and illustrates a preliminary “anatomy” of the present global food crisis.
Food Price Drivers
Short-term external factors:
FINANCIAL SPECULATION. There is suggestive evidence that there is indeed a speculative bubble at least in some commodities. It is difficult to reconcile such abrupt volatility and sharp increases in some commodities with changes in fundamentals. The role of index investors has increased substantially, bringing a new class of investor and a new way of investing into commodity markets.
HIGHER OIL PRICES. The higher price of petroleum has helped raise the costs for producing agricultural commodities (namely the costs of fertilizers, some of which are petroleum-based), thus creating add-on effects to the cost of production and productivity.
GOVERNMENT POLICIES. Authorities have responded in a variety of ways to meet the challenges related to the recent increases in food prices. Some of these policies are meant to secure a country’s food stocks and keep domestic prices affordable, including applying taxes on exports, export ceilings or bans.
Medium- to long-term external factors:
RISING AND CHANGING PATTERNS OF FOOD CONSUMPTION. Global demographic changes and changing patterns of income distribution over the next fifty years are expected to lead to an increased general demand for food, as well as different patterns of food consumption. It is predicted that global cereal demand will increase by 75 percent between 2000 and 2050, while global demand for meat is expected to double during that same period. The increase in demand for the latter also implies a concurrent increase in feedstock demand. It is expected that more than three-fourths of this growth in demand for both cereals and meat will be accounted for by developing countries, notably China and India.