Why are prices High?

1. Poor Harvests, lack of fertilizers, and restrictive trade policies — The world production of cereals has not kept pace with the demand. The cause is from droughts, flooding, and a lack of fertilizers (a petroleum product) in many parts of Asia and Africa. As stocks have dwindled, some countries have now placed export restrictions on food to protect their own supplies. This is especially punishing poor countries that depend on imports for much of their food. Stocks of cereal products have dropped from 650 million tons to just over 400 million tons.
2. Increasing price of fuel — Food products track energy costs. As the price of oil rose over $140 a barrel, the cost of running a farm rose. Petroleum is a key ingredient in making some types of fertilizer, which is increasingly essential to agriculture in countries where the “ground has been used up” due to the lack of crop-rotation and the constant use of land.
3. Diversity of crops for bio-fuels — The expensive fuel costs created more demands for alternatives. In the United States, farmers are devoting more land to corn at the expense of other crops and turning more of the corn they grow into ethanol. Both corn and grain prices have been driven higher (increase of corn used for fuel — 2000: 4%, 2008: 24%).
4. Increase in demand — As countries become richer (China and India), people tend to purchase foods such as fruit and meat more than staples, such as rice. As a result, more grain has been diverted to feed livestock than people. Staples for people have risen as a result, as have the prices of meat products, ad the demands go up.

Future Anticipations: Prices are not expected to go down anytime soon. Even though oil costs have gone down, the demands for bio-fuels and the move towards protectionist trade policies have kept prices high. There will be areas of the world with significant food shortages (Asia and Africa) while other countries in the same region may have increases in food production kept within the home-country. Countries with poor agriculture practices will suffer the worst.

Sources: United Nations Food and Agricultural Organization; Agriculture Department; Energy Information Administration; World Bank; International Food Policy Research Institute; and Global Food Price Index.