Thursday, 12 June 2008

DANIDA's note on the causes and consequences of the rapidly increasing international food prices

Commissioned by the Ministry of Foreign Affairs of Danemark, the Institute of Food and Resource Economics, University of Copenhagen, has elaborated “A note on the causes and consequences of the rapidly increasing international food prices”.

The report will contribute to the Ministry’s general assessment of the global food situation – and to the debate on the key issues to be addressed in a development context. May 2008 36 pages.

To summarize, there are different stories behind the large increases in world prices for maize, wheat and rice. [extracts]
  1. Developments in the maize market are largely driven by the long term structural shifts in global food demand towards a greater dietary content of meat and dairy and, more recently, rapid growth in the biofuel industry using maize as a feedstock.
  2. The current high wheat prices are mainly caused by three consecutive years of weather-induced harvest shortfalls in some of the most important exporting regions, Australia, Europe and North America, at a time where wheat stocks are historically low.
  3. Finally, the soaring price of rice is primarily a product of hoarding by some of the most important actors in the international rice markets, which have imposed severe export restrictions in attempts to secure rice supplies.

Within the developing countries the rising food prices lead to redistriubtion as some households benefit from the higher prices while others are hurt by them. At the most general level the income for net producers of food will increase while net consumers will experience a tighter consumption budget. Using this broad distinction between net producers and consumers one must expect poverty to increase in urban areas while it may decrease in rural areas. The latter depends, in part, on the distribution of land, though, because landless poor in the rural areas will only benefit if the price increases spill-over on the wages for unskilled labor.

Moving beyond these general statements is difficult because the distribution of urban and rural poor varies greatly across countries and, furthermore, there is large variation in the types of food commodities produced across countries. This report can be downloaded here