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 low-income countries heavily dependent on staple food and fuel 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 increased by about 35 percent from 2006.

Main causes attributed to the soaring food prices:

• 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 inputs, irrigation and transportation costs
• 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)
• the imposition of export restrictions leading to hoarding and panic buying

International prices – and food import bills – fall in 2009

International food prices have come down considerably from their 2008 peaks, although they are higher than they were before the onset of the food crisis.

The 2008 global food import bill, which surpassed USD 1 trillion, is set to drop by USD 226 billion in 2009, provided international food prices continue to decline, as well as freight rates.

For low-income food-deficit countries, the cost of food imports in 2009 is expected to be down by nearly one quarter from the previous year’s figures.

High domestic prices and economic slowdown threaten food insecurity

Despite these improvements, the downturn in the global economy is making food less accessible to the world’s poor. In many developing countries, the cost of basic staple foods remains stubbornly high.

In a recent survey of 58 developing countries, domestic prices were higher than the previous year in 78 percent of the cases, and higher than three months earlier in 43 percent of the cases. The situation is particularly dire in sub-Saharan Africa.

Diminished incomes and less money being sent from relatives working abroad have put the squeeze on household food security. 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.

Global food supply up, but volatility persists

A record cereal crop in 2008 bolstered the global cereal supply, and another bumper crop is expected in 2009. This has helped to ease prices on the international market, with cereal prices down 32 percent in May 2009 compared with figures in April 2008.

But the risk of food price volatility persists.

In the longer term, continuing economic and population growth in developing countries, the negative impact of climate change on food production in many areas, inefficient use of land and water resources and the continuing demand of bio-fuels are strong factors likely to maintain pressure on food prices. A sliding US dollar and rising energy prices will also influence market volatility.

Getting agriculture back on track in the fight against poverty

To avert another food crisis, it is critical to address the root causes of the problem, by building the resilience of smallholder farmers – who number about one-third of the world’s population – to future shocks and improving food and nutrition security over the long term. 

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

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

In many parts of the world, smallholder farmers have had to battle with a lack of quality inputs, storage facilities, good transport, access to technology and well-functioning marketing and credit systems.

Another obstacle has been the lack of irrigation, especially in sub-Saharan Africa, where only 4 percent of arable land is irrigated.

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. Today, about 40 percent of arable land in Asia is irrigated.