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“Perfect Storm” Spurred 2007-08 Food Crisis, Study Says

Matthew O. Berger

WASHINGTON, Nov 19 2010 (IPS) - Rising food prices have not yet reached crisis levels but they are expected to remain very volatile for about the next decade, researchers said Thursday.

The conclusions were based on a new study of the factors that contributed to the 2007-08 food crisis, which researchers hope will shed light on what actions might be taken to avoid food crises in the future.

“There were many suspects for what caused the crisis, but little evidence,” said Derek Headey, a research fellow at the International Food Policy Research Institute, who co- authored the report. “Three years on, there is more evidence.”

The IFPRI study cites a “perfect storm” of factors: rising energy prices, demand for biofuels, depreciation of the U.S. dollar, and a variety of trade shocks such as panic purchases, export restrictions and unfavorable weather.

Many of these factors have helped contribute to the rises in food prices that have occurred in the second half of this year, leading some to wonder whether another food price crisis might be on the horizon.

Headey and his co-author, IFPRI director general Shenggen Fan, think that possibility is still unlikely but hope that pinning down the causes of past crises will point out ways to mitigate the damage of future food price spikes before they get out of control.

They say their research disproves several prominent theories for what triggered the crisis, including dramatic increases in demand from India and China, declines in agricultural yields or the amount of grain held in reserve stocks, and speculation on futures markets.

Speculation could have played a role and that role should be examined further because it could exacerbate causes for price spikes in the future, says Headey, but it was not a driving factor in the price spikes.

After these prices peaked in summer 2008, the number of the world’s hungry crossed the one billion threshold in 2009 to reach an all-time high. The U.N.’s World Food Programme estimates that 925 million people will suffer from chronic hunger this year, a reduction of 9.6 percent but still above the pre-crisis number of 830 million hungry.

There have been fears that currently rising food prices could lead to another spike in these numbers.

The U.N.’s Food and Agriculture Organisation said Wednesday that it expects global cereal production to drop two percent this year, rather than rise 1.2 percent as it previously estimated. It also said the amount of food imported globally currently adds up to 893 billion dollars. If it were to pass the $1 trillion mark, it would be at a level not seen since the 2007-08 food price crisis.

Both these factors would have impacts on food prices, the agency said, though it noted that there is still no crisis as yet.

Since June wheat prices have increased by 60 percent and maize prices by 50 percent, but Fan says these increases are have not been rapid enough to warrant the “crisis” label.

He also says that there are larger food stocks in reserve now than in past years.

Food stocks, he says, could play a key role in helping to avoid future crises. Ideally, he would like to see the creation of a global grain reserve system to be administered by an agency like the WFP and have stocks located in geographically strategic locations around the globe in order to ensure that food prices – and the hunger they can lead to – can be avoided.

Fan also sees a need for a global warning system that would track not only food prices but energy prices, which have a lot of influence over the price of some foods, especially grain from the U.S.

“If we only focus on agriculture we’re going to miss the warning signals,” says Headey.

Energy prices have even more influence over food prices and production now with the emergence of biofuels, which siphon land and some crops, like maize, away from food markets. This emergence of biofuels acted as a sort of shock on food markets in 2007-08, helping to rapidly drive up prices, according to the IFPRI report released Thursday.

“It’s clear we need to stop subsidising biofuel,” says Fan. “It’s not a solution to climate change, environmental problems or increasing poor farmers’ incomes.”

He also cites inflation as a result of rising energy prices that can itself result in people being less able to afford food. This, he says, is currently happening in India and China. “If fuel prices continue to rise, I can guarantee you that food prices will rise as well,” he says.

But Fan is just as certain that steps like the creation of a global network of food stocks are critical to head off future emergencies. “I firmly believe that if these actions are taken we can avoid another crisis,” he says.

Even if the current rises in food prices do not turn into a full-blown crisis, the price volatility that is occurring today follows the pattern of past price crises. The spikes in commodity prices that occurred in 1974, for instance, had similar causes as those that led to the 2007-08 food price crisis, says Headey, and were followed by a decade of price volatility.

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