Inflation Adjusted World Prices Rise 50% in 10 Years
World Food Prices are up by 50% over the level 10 years ago – These figures are inflation adjusted
Started rising in the early 2000s after the long term decline since 1961. The annual FAO Food Price Index (FPI) spiked sharply in 2007 and 2008 after moderating in 2009, they increased again in 2010, and real prices are now 50 percent higher than their levels ten years previously.
Era of declining real food prices appears to have ended or at least halted, and forecasts suggest that prices would remain above their long-term trend throughout the next decade given existing policies, productivity and demographic trends and macroeconomic assumptions.
Figure 1: The FAO Annual Food price Index (FPI) in real terms, 1961-2010
Prices began rising again in mid-2009 and surged during the second half of 2010. The prices remains above the peak reached in June 2008.
Figure 2: The FAO monthly Food Price Index, January 2007–May 2011
By January, 2011 prices of cereals, oils, dairy and meats were almost as high as they were during the food price crisis of 2007-08 and the price of sugar was much higher. The price index for meat has continued to rise, but other commodity price indices have remained steady or decreased slightly in recent months, with the exception of sugar which has fallen significantly.
The OECD-FAO Agricultural Outlook 2010 – 2019 (OECD-FAO, 2010), real commodity prices are expected to be higher on average over the next decade than they were in the period from 2000 to 2009.
Crude Prices, Bio Fuels Substitutes and Demand behind Price Rise
Factors underlying the projected higher agricultural commodity prices include-
· higher energy costs,
· increased demand by emerging developing countries
· growing production of biofuels from agricultural feed stocks.
The essence of the price system is that when a commodity becomes scarce its price rises, which induces a fall in consumption and more investment in the production of that commodity.
Weather shocks behind falling food production
Consumption and trade fall but prices rise
Growth in the global agricultural production index (measured in constant prices) slowed to about 1.5 percent in 2009 and to a mere 0.2 percent in 2010; this followed significant increases of about 2.7 and 4.5 percent respectively in 2007 and 2008. Weather shocks such as the drought in the Russian Federation during the summer of 2010, which caused the country’s wheat production and exports to fall dramatically, and by reduced yields in the United States of America.
Growth in global food consumption, which had been increasing at a rate of over 2 percent per year, slowed in 2007 and has been reduced to a very low level of about 1.2 percent in 2010; this indicates negligible growth in per capita global food consumption in 2010. Growth in trade had been in the 4-6 percent range annually before 2008, but it has since then fallen to the 2–3 percent range.
Markets Fail during periods of Excessive Price Volatility – Supply side intervention must to protect the poor
Efficiency of the price system begins to break down under excessive price volatility, as uncertainty creates higher investment risks.
Price volatility may be increasing in frequency, severity and amplitude.
There are 1 bn or 100 crore of under nourished on this planet. High price is one factor behind hunger and malnutrition
FAO estimated that the number of undernourished were 925 million in 2010, compared to the peak level of 1.023 billion in 2009, as a result of improved prospects for the global economy and lower food commodity prices.
Although the majority of the world’s undernourished people (578 million) live in Asia and the Pacific, the highest prevalence of undernourishment is found in sub-Saharan Africa. In 2005–07 (the latest period with complete information by country), the prevalence of undernourishment was 30 percent for sub-Saharan Africa, compared with 16 percent for Asia and the Pacific.
The number of emergencies have risen, political instability and failed states behind rise
The number of emergencies in countries requiring assistance for food has increased since the mid-1980s. The frequency of human-induced emergencies seems to have increased since the mid-1980s, particularly in Africa, with conflict accounting for most of them.
Figure 7: Number of emergencies in countries requiring assistance for food, by type 1982–2010
Source: FAO, 2011. For more detailed information please see FAO, 2011. Crop Prospects and Food Situation, March, Rome.
Food Deficit in Sub Saharan Africa Rises 60 percent
In sub-Saharan Africa agricultural production has been erratic, but has increased since 2006 while food imports increased through 2007, and exports were stagnant although volatile over the period; this might lead to the expectation that per capita consumption has increased as well. However, that was not the case. Per capita food consumption in the region only increased slightly from 2000 to 2007 and it decreased during the food and financial crises. This poor performance is due to several reasons, including the rate of population growth exceeding that of the rate of increase in food availability in the region. It is likewise troubling to note that during the last decade, net food imports by sub-Saharan Africa, measured in constant prices, increased more than 60 percent, implying a further widening of the food trade deficit faced by this region and increased budgetary pressure for the countries.
Imports increased over the decade, but declined in 2010 resulting in large part from high world food commodity prices. Increases in the region’s imports were mainly a result of increases in the purchases of wheat, rice, coarse grains (for animal feed), meat (especially poultry) and dairy products.
Imports of deficit countries have grown, food exporters prosper
Imports have registered significant growth over the period. Export performances by countries in Latin America and the Caribbean, for which food exports nearly doubled over the decade, have made this region an increasingly important food supplier to global markets.
Over the period 2000 to 2010 per capita consumption of basic foods remained stagnant-to falling in North America. Production increased moderately over the decade, led mainly by growth in the United States where a low dollar has boosted its competitiveness. Production registered a decline in 2010 due to weather related problems. Export volumes from North America grew by about 32 percent over the decade.
Eastern Europe and Central Asia Emerge as Agro Powers
Per capita food consumption in Eastern Europe and Central Asia increased slightly over the last decade (Figure 14). By contrast, food production has grown very rapidly in this region, which recorded bumper crops in 2008 and 2009. The drought of 2010, however, implied substantially reduced levels of crop production in the region. Livestock and dairy production have recently demonstrated a return to growth after more than a decade of stagnation.
Asia Leads as Importer, Exporter and Producer
Food consumption per person has increased continuously in Asia in the last decade (Figure 15), as a result of strong economic growth and sustained regional production which grew on average about 2 to 4 percent per year through most of the decade before slowing in 2009 and 2010. Imports rose more rapidly in Asia than in any other region, increasing in volume terms by almost 75 percent between 2000 and 2010, led by increased imports of oilseeds, coarse grains, meat and dairy products. Exports from the region have likewise increased rapidly, mainly due to growth in trade of products such as palm oil, rice and meat.