Rising Food Prices

Rising food prices

Introduction:

Food prices have been on the rise and have become a global issue. Prices have soared over the past year and a half and threaten to go up further if issues are not addressed immediately. Below is a look at how prices have been over the past year.

Figure 1. FAO Food Price Index: February 2007 - January 2008

Source FAO, 2008

In this project, we attempt to find out the causes for this price rise, the trends of the rise and the effects that this rise has had on us.

Causes:

1. High demand for food in developing countries:

The growing world population is demanding more and different kinds of food. Rapid economic growth in many developing countries has pushed up consumers' purchasing power, generated rising demand for food, and shifted food demand away from traditional staples and toward higher-value foods like meat and milk.

Meat also consumes food resources in a shockingly inefficient way: it takes 8kg of grain to produce 1kg of beef, and 4kg for pork. But each kilo of grain may need a ton of water. And fuel oil is needed throughout the process, to fertilize the grain, pump water and to transport it.

Economic boom in India and China: India and China account for 1/3 of the world population and these countries have seen a great economic boom in the recent years and this partially is attributed to the rising costs. Around the world, people have eaten more as they grew richer. This phenomenon is called Nutritional transition. Hundreds of millions more people are now rich enough to eat meat compared with 10 years ago, with meat consumption in China more than doubling over the past 20 years.

2. Poor Weather in Various countries

There has been drought in various countries in the world which is causing a shortage in grains around the world. Australia has faced 6 years of drought and this has reduced the rice production a lot and this is one of the factors for rice prices going up so much in the recent months.

Drought has already led to significant changes in Australia's agricultural trends. Some farmers are abandoning rice, which requires large amounts of water, to plant less water-intensive crops like wheat or, especially in southeastern Australia, wine grapes. Other rice farmers have sold their fields or their water rights, usually to grape growers.

Scientists and economists worry that the reallocation of scarce water resources — away from rice and other grains and toward more lucrative crops and livestock — threatens poor countries that import rice as a dietary staple.

As we see in this data, since grape production gives the farmers more profit they are turning to grape production instead of rice. Things like this are causing rice prices to go up tremendously.

Even with the recent doubling of rice prices, to around $1,000 a metric ton for the high grades produced by Australia, it is even more profitable to grow wine grapes.

3. Rise in oil prices and effect on food prices

Oil prices have risen exponentially in the last few years and this has had a tremendous effect on the food prices. Oil prices have increased by more than 4 times in the last 6 years. This means that it costs four-times as much to plant, irrigate, harvest and transport as it was six years ago.

4. Policy effects

Many countries are taking steps to try to minimize the effects of higher prices on their populations. Argentina, Bolivia, Cambodia, China, Egypt, Ethiopia, India, Indonesia, Kazakhstan, Mexico, Morocco, Russia, Thailand, Ukraine, Venezuela, and Vietnam are among those that have taken the easy option of restricting food exports, setting limits on food prices, or both. For example, China has banned rice and maize exports; India has banned milk powder exports; Bolivia has banned the export of soy oil to Chile, Colombia, Cuba, Ecuador, Peru, and Venezuela; and Ethiopia has banned exports of major cereals. Other countries are reducing restrictions on imports: Morocco, for instance, cut tariffs on wheat imports from 130 percent to 2.5 percent; Nigeria cut its rice import tax from 100 percent to just 2.7 percent.

Such policy changes have caused people to increase their inventories expecting the worst and so the prices have gone up a lot.

5. Bio Fuels:

With oil prices at an all-time high of more than US$100