What policy options exist for combating the issue of food inflation?
Answers
Answer:
The rising trend in international food prices continued, and even accelerated, in 2008. U.S. wheat export
prices rose from $375/ton in January to $440/ton in March, and Thai rice export prices increased from
$365/ton to $562/ton. This came on top of a 181 percent increase in global wheat prices over the 36 months
leading up to February 2008, and a 83 percent increase in overall global food prices over the same period.
Increased bio-fuel production has contributed to the rise
in food prices. Concerns over oil prices, energy security and
climate change have prompted governments to take a more
proactive stance towards encouraging production and use of
bio-fuels.1 This has led to increased demand for bio-fuel raw
materials, such as wheat, soy, maize and palm oil, and
increased competition for cropland. Almost all of the increase
in global maize production from 2004 to 2007 (the period
when grain prices rose sharply) went for bio-fuels production
in the U.S., while existing stocks were depleted by an increase
in global consumption for other uses.2 Other developments,
such as droughts in Australia and poor crops in the E.U. and
Ukraine in 2006 and 2007, were largely offset by good crops and increased exports in other countries and would
not, on their own, have had a significant impact on prices. Only a relatively small share of the increase in food
production prices (around 15%) is due directly to higher energy and fertilizer costs.3
The observed increase in food prices is not a temporary phenomenon, but likely to persist in the
medium term. Food crop prices are expected to remain high in 2008 and 2009 and then begin to decline as
supply and demand respond to high prices; however, they are likely to remain well above the 2004 levels through
2015 for most food crops (Table 1). Forecasts of other major organizations (FAO, OECD, and USDA) that
regularly monitor and project commodity prices are broadly consistent with these projections. Predictions of
high food price in the medium run are further strengthened when we factor in the impact of policies aimed at
achieving energy security and reduced carbon dioxide emissions, which may present strong trade-offs with food
security objectives