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GIEWS Update-detail
FAO/GIEWS Global Watch

11 December 2007

High cereal prices are hurting vulnerable populations in developing countries

Prevailing high international cereal prices, coupled with soaring freight rates and record world fuel prices, have resulted in substantial rises in retail prices of cereal based food staples, such as bread, pasta and tortillas, as well as milk and meat, in countries across the world, generating inflationary pressure on domestic food markets and fuelling social unrest. In the past months, food riots have broken out in such countries as Mexico, Morocco, Uzbekistan, Yemen, Guinea, Mauritania and Senegal.

Most affected by the higher cereal prices are those developing countries that depend heavily on imports from the world market to cover their cereal consumption requirements. Poor populations are anticipated to bear the heaviest burden, because their diets consist of a very high proportion of cereals. In addition, the poor spend a higher share of their income on food than do wealthier sections of populations: the most vulnerable groups can spend up to 80 percent of their total expenditures on basic foods alone. As a result, the higher cereal prices are not only leading to the deterioration of their diets in terms of quantity and quality, but also significantly eroding their overall purchasing power.

Governments around the world have implemented a series of policy measures to limit the increase of domestic food prices and prevent consumption from falling, including price controls, subsidies, reduction/waiving of import barriers and imposition of export restrictions. The impact of these measures on the food security of vulnerable households will vary widely and is yet to be assessed.

In North Africa, in Algeria, Egypt and Morocco, which have imported on average 66 percent, 50 percent and 36 percent respectively of their total wheat utilization over the past 5 years, soaring international prices have pushed up domestic prices of bread, the main staple, seriously affecting food security of vulnerable households. The Government of Morocco recently cut wheat import tariffs to the lowest level ever, while Egypt has significantly raised food subsidies.

In the CIS countries, there is concern about wheat supplies in Tajikistan and Kyrgyzstan. In the latter country, where poor people spend over 70 percent of their incomes on food alone, the price of bread in the capital, Bishkek, has increased by 50 percent. Salaries and pensions, on the other hand, have increased only by 10 percent this year. It is roughly estimated that 500 000 people in the poorest strata of the population are directly affected by the increase in bread and other basic products. In an attempt to ease the situation, the Government has released wheat from the emergency reserve in the poorest areas but without any effect on inflation. With spiralling food costs, the Government has revised the country’s 2007 annual inflation estimate from 5-6 percent up to 9 percent.

In Central America, production of the main food staple, tortilla, depends on large imports of maize, retail prices for which are well above the previous year’s level in most markets of the subregion. In Guatemala, the price of maize in September was almost 50 percent higher than a year earlier. Bread from wheat flour (fully imported except in Mexico), another important component of the food basket in Central America, has also increased sharply, eroding the purchasing power of the poorest households and hampering their access to food.

In Andean countries of South America, where production of the basic staple bread heavily depends on imported wheat flour, the current high level of international wheat prices is also raising concern about the food security of low-income households. In Peru, the price of imported wheat has increased by 50 percent since the beginning of the year with resulting increases in the price of bread; the local Bakers Association has proposed the adoption of “bread-coupons” in order to subsidize bread for the poorest families. In Ecuador, the Government has authorized imports with no levy for wheat and wheat flour from Argentina in order to control local bread prices. In Bolivia, the Government has empowered the national army to run some industrial bakeries to produce bread at affordable prices for the most vulnerable population groups.

Elsewhere in the world, cereal import dependent countries such as Cape Verde, the Gambia, Eritrea, Somalia, Lesotho and Swaziland in Africa, or Mongolia, Sri Lanka and Timor-Leste in Asia, which, even in good agricultural years import at least 50 percent of their total cereal consumption, are among those more affected by the high levels of international cereal prices.

Read more in the latest issue of:

Crop Prospects and Food Situation - No.6, December 2007