Friday, January 14, 2011

Food Prices are Now at 2008 Peak

The big news is that FAO's measure of  general food prices in December reached the peak we had in 2008, a little more than twice as high as prices were in 2002-2004. Evans and GDN are quick to point out the difference between this time and last:
  • Most of the increase is in meat, sugar, and vegetable oils rather than cereals. Poor consumers can substitute away from those products and buy more staples, so they should be hit less hard than last time.
  • Of staple cereals (left) rice has seen very little movement - still at half of its old peak - and wheat is still well below its peak. This is important because the most harmful and wide-reaching policy actions last time happened in countries where rice is the most important staple. If rice prices stay where they were in 2009, we might avoid a repeat of 2008's policy reactions.
  • Only maize, the cheapest of the three, has reached its 2008 peak. This is another contributing factor in why meat prices are high.
  • Many African countries have done a good job responding to the last food crisis by investing more in their agriculture. As a result, African and Asian countries have had bumper crops - so much so that while world maize increased 45%, they are down 10% in some parts of Africa.
  • Oil prices are still $50/barrel lower than their peak in 2008, another boon to farmers.
GDN argues that among the implications of these is that US policy can have a large impact by suspending biofuel mandates and improving food aid policies when the farm bill comes up for debate again in 2012.

One thing neither report mentions is possible psychology factors. The 2008 food crisis had a very high percentage change in food prices, while absolute price changes were relatively small and remained lower than they were in the mid 1980s for the most part. This time we are at a higher base, so there is a smaller percentage increase in prices. If it is less the absolute price level that matters to consumers' perceptions and chance of rioting, and more the rapid change in percentage that matters, that would help explain why we see so little unrest right now as well.

Nelson at IFPRI points out that the relative threats to the global food system change over time. Right now, population and income growth matter most, making random weather shocks more potent than they would have been ten years ago. Over the next 40 years, however, population growth is expected to slow so it will be less important and climate change and supply side factors will become more important. He predicts that the next 40 years will see a doubling of maize prices and roughly a 50 percent increase in rice and wheat prices. If agricultural research can increase productivity 40 percent beyond the baseline scenario, however, those increases can be cut in half.

IFPRI has just released a new set of international wheat market tools to help people track prices and other information. Further tools are expected soon for maize and rice. Worldwatch Institute is also releasing its new report on 15 innovations that are already happening in parts of Africa to increase production on small farms and reduce hunger. I will return to that report in a future post.

Zamiba's Food Reserve Agency is exporting nearly 300 thousand tonnes of maize to nearby Namibia, DRC, and Zimbabwe. High export costs and a lack of trucks have been slowing the process.

Update: "so little unrest" is a bit more than I thought:
And just as they were posting, riots flared up in Algeria, with two killed and hundreds injured in the protests against soaring food prices. Across the border in Tunisia 14 were killed in clashes with the police. As the unrest spreads across northern Africa, Egypt is nervously trying to put measures in place to prevent any comparable violence, with extra supplies of meat being flown in from Kenya. An occupational hazard of blogging; no sooner have you posted, than somewhere in the world you have been outstripped by events.

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