BBC

Q&A: Rising world food prices

The price of wheat, rice and maize have nearly doubled in the past year - and they are not the only foodstuffs trading at a high price on the international commodity market.

Things have got so bad that aid agencies are having to rethink their programmes.

BBC News looks at why prices are rising and what can be done about it.

What is going on?

Prices are increasing sharply for some of the most basic foodstuffs traded on international commodity markets.

The price of wheat has doubled in less than a year, while other staples such as corn, maize and soya are trading at well above their 1990s averages.

Rice and coffee prices are running at 10-year highs, and in some countries, prices for milk and meat have more than doubled.

Why are we seeing these increases now?

It could be the breakdown of the "Goldilocks era" for global commodities - a period stretching back more than 30 years, during which the price of basic foodstuffs has been neither too high nor too low, but remained relatively constant.

For most of this period, the cost of staples such as wheat, corn and soya has actually fallen in real terms.

And food buffer stocks are at all-time lows as countries saw no need to accumulate them.

But it seems this long period of stability is coming to an end. Most commentators believe we are on the cusp of a new era of volatility and rising prices which will last for some time to come.

Who are the winners and losers?

The main losers are poor people who live in cities in developing countries, who are facing higher prices for imported food on low incomes.

Food riots from Haiti to Indonesia are causing increasing political instability.

The World Bank says that the high price of food could lead to developing countries missing international poverty targets.

The main gainers are farmers in rich and emerging market nations like the US, Brazil, Argentina, Canada and Australia, who are getting record prices for their harvests.

Some poor farmers are also benefiting from higher prices.

What are the main causes?

The first reason why prices are rising is growth in the world's population, which is expected to top nine billion by the middle of the century.

That is an incredible number of mouths to feed and will put pressure on a range of resources, including land, water and oil, as well as food supply.

But lurking behind the headline figures for population is an even more significant factor pushing up prices, and that's the economic miracle driving emerging economies such China and India.

To put it bluntly, rich people eat more than poor people, and all this economic growth is generating a whole new tier of middle-class consumers who buy more meat and processed food.

The FAO estimates that processed food now accounts for 80% of food and beverage sales.

What other factors are involved?

There is also the added environmental pressure all these extra people are loading onto the planet, as well as the impact of climate change.

Desertification is accelerating in China and sub-Saharan Africa, while more frequent flooding and changing patterns of rainfall are already beginning to have a significant impact on agricultural production.

And global warming has played a significant role in another driver of rising prices: the shift in agricultural production from food to biofuels.

Ethanol production is on course to account for some 30% of the US corn crop by 2010, dramatically curtailing the amount of land available for food crops and pushing up the price of corn flour on international commodity markets.

What can be done about it?

Many countries are subsidising the price of food, and the World Bank has called for targeted subsidies to help the poor.

And the UN's World Food Programme needs another $500m (£250m) to make up the gap in emergency food aid.

In the longer term, international aid agencies have called for more money to support food production in developing countries.

So far, only a small part of foreign aid goes to help farmers, but the World Bank says it will double its assistance to African agriculture to $800m

The food crisis is also likely to complicate the task of agreeing the next round of world trade talks, the Doha round, which is focused on agriculture.

Agencies like Oxfam also want protection for small farmers in developing countries and agricultural marketing boards against the demand of the rich countries that they fully open their markets.

How to End the Global Food Shortage

The world economy has run into a brick wall. Despite countless warnings in recent years about the need to address a looming hunger crisis in poor countries and a looming energy crisis worldwide, world leaders failed to think ahead. The result is a global food crisis. Wheat, corn and rice prices have more than doubled in the past two years, and oil prices have more than tripled since the start of 2004. These food-price increases combined with soaring energy costs will slow if not stop economic growth in many parts of the world and will even undermine political stability, as evidenced by the protest riots that have erupted in places like Haiti, Bangladesh and Burkina Faso. Practical solutions to these growing woes do exist, but we'll have to start thinking ahead and acting globally.

The crisis has its roots in four interlinked trends. The first is the chronically low productivity of farmers in the poorest countries, caused by their inability to pay for seeds, fertilizers and irrigation. The second is the misguided policy in the U.S. and Europe of subsidizing the diversion of food crops to produce biofuels like corn-based ethanol. The third is climate change; take the recent droughts in Australia and Europe, which cut the global production of grain in 2005 and '06. The fourth is the growing global demand for food and feed grains brought on by swelling populations and incomes. In short, rising demand has hit a limited supply, with the poor taking the hardest blow.

So, what should be done? Here are three steps to ease the current crisis and avert the potential for a global disaster. The first is to scale-up the dramatic success of Malawi, a famine-prone country in southern Africa, which three years ago established a special fund to help its farmers get fertilizer and high-yield seeds. Malawi's harvest doubled after just one year. An international fund based on the Malawi model would cost a mere $10 per person annually in the rich world, or $10 billion in all. Such a fund could fight hunger as effectively as the Global Fund to Fight AIDS, TB and Malaria is controlling those diseases.

Second, the U.S. and Europe should abandon their policies of subsidizing the conversion of food into biofuels. The U.S. government gives farmers a taxpayer-financed subsidy of 51¢ per gal. of ethanol to divert corn from the food and feed-grain supply. There may be a case for biofuels produced on lands that do not produce foods--tree crops (like palm oil), grasses and wood products--but there's no case for doling out subsidies to put the world's dinner into the gas tank.

Third, we urgently need to weatherproof the world's crops as soon and as effectively as possible. For a poor farmer, sometimes something as simple as a farm pond--which collects rainwater to be used for emergency irrigation in a dry spell--can make the difference between a bountiful crop and a famine. The world has already committed to establishing a Climate Adaptation Fund to help poor regions climate-proof vital economic activities such as food production and health care but has not yet acted upon the promise.

What is true for food will be true for energy, water and other increasingly scarce resources. We can combat these problems--as long as we act rapidly. New energy sources like solar thermal power and new energy-saving technologies like plug-in hybrid automobiles can be developed and mobilized within a few years. Environmentally sound fish-farming can relieve pressures on the oceans. The food crisis provides not only a warning but also an opportunity. We need to invest vastly more in sustainable development in order to achieve true global security and economic growth.

Jeffery Sachs

Club Of Rome: The Limits to Growth

Abstract established by Eduard Pestel. A Report to The Club of Rome (1972)

Conclusions are :

1. If the present growth trends in world population, industrialization, pollution, food production, and resource depletion continue unchanged, the limits to growth on this planet will be reached sometime within the next one hundred years. The most probable result will be a rather sudden and uncontrollable decline in both population and industrial capacity.

2. It is possible to alter these growth trends and to establish a condition of ecological and economic stability that is sustainable far into the future. The state of global equilibrium could be designed so that the basic material needs of each person on earth are satisfied and each person has an equal opportunity to realize his individual human potential.