FAO Initiative on Soaring Food Prices
 

Background

The food price crisis:  what happened and why?

Between 2006 and 2008, international prices for basic food commodities shot up by 60 percent while grain prices doubled. By mid-2008, food prices on international markets had reached their highest level in nearly 30 years.

This surge was particularly harsh for poor countries heavily dependent on staple food imports. In Africa, despite considerable agricultural potential, the majority of countries are net importers of cereals. In 2008, the food import bill for low-income food-deficit countries had increased by about 35 percent from 2006.

The main causes attributed to the soaring food prices in 2008 include:
• poor harvests in major producing countries linked to extreme weather events;
• declining food stocks – world stocks were at their lowest since the 1970s;
• high oil and energy prices raising the cost of fertilizers, irrigation and transportation;
• lack of investment in the agricultural sector;
• subsidized production of bio-fuels that substitute food production;
• speculative transactions, including large commercial traders hedging in futures markets and small traders hedging and building up storage;
• export restrictions leading to hoarding and panic buying.

International prices back up and volatile

Food price are once again rising and price volatility continues to be a concern. From July to September 2010, grain prices rose sharply, particularly for wheat. By December 2010, the FAO Food Price Index had topped its 2008 peak, with sugar, oils and fats increasing the most.

In March 2011, the index dropped for the first time after eight months of continuous price spikes. The index dropped to an 11-month low in October 2011, but food prices still remain very volatile.

High domestic prices and economic slowdown

The downturn in the global economy has made food less accessible to the world’s poor. Diminished incomes and less money being sent from relatives working abroad have put the squeeze on household food security, especially with food prices still high in many developing countries.

Poorer families typically spend two-thirds or more of their income on food, with less for healthcare and education. During tough economic times, people eat fewer meals or opt for cheaper, less nutritious food, raising the risk of malnutrition.

In 2009, the number of people suffering from hunger swelled to over 1 billion –or one in six people. Those numbers have since dropped by about 98 million people, but volatility in food prices could make the achievement of the first UN Millennium Development Goal – halving global poverty and hunger by 2015 – that much more difficult.

And there are a number of factors that could maintain pressure on food prices in the coming years, including economic and population growth in developing countries, the negative impact of climate change on food production, natural disasters, the inefficient use of land and water resources, insufficient information on crop supply and demand and poor market transparency.

Getting agriculture back on track in the fight against poverty

In many parts of the world, smallholder farmers –who number about one-third of the world’s population – struggle to access quality seeds and fertilizers, decent storage facilities, good transport, modern technology and well-functioning marketing and credit systems.

The lack of irrigation is another obstacle, especially in sub-Saharan Africa, where only 4 percent of arable land is irrigated.

Diversifying and intensifying agricultural production and building the resilience of smallholder farmers to cope with climate and market shocks are key to improving food and nutrition security over the long term. 

To do so requires a commitment to scale up investments in agricultural and rural development. This means increased Official Development Assistance (ODA) and private investments, but also greater agriculture expenditures in the national budgets of developing countries.

One of the aims of the Comprehensive Africa Agriculture Development Programme (CAADP), an African-owned and African-led programme designed to spark economic growth through agricultural development, is for governments to raise the allocation of public investment to the sector to 10 percent. 

Greater attention to agriculture in domestic and international policies is also critical, including policies that focus on increased investments in agricultural infrastructure, the research, development and delivery of new technologies and the sustainable management of soil and water resources.

When food prices soared in the 1970s, many Asian governments chose to invest in irrigation and agricultural research, and this set the stage for rapid productivity growth that saved millions from poverty and hunger.

 

Woman purchasing food in market
Woman purchasing food in market