Food prices have never been higher. Why? The World Bank tells us that these record high food prices have brought even more people into poverty. Wheat has been leading the way with the price of this commodity doubling in the last year. During the last eight months, 44 million people have dropped below the poverty line. Their study shows a 15% increase in food staples during this time frame. So what is causing this?
In a developed country, this increase may seem insignificant. But for those who live on around a dollar a day this is extremely difficult. This price increase for food has meant that people in developing countries are skipping meals or having no food at all. The reasons for all of these shifts in prices have been difficult for me to understand. Let me share with you some reasons that perhaps you haven’t considered.
According to the Food and Agriculture Organization of the UN, the rise in prices have been considerably governed by the following four factors.
1. The rise of biofuels, like ethanol made from corn. Although this has presented an alternative energy resource, it has also caused a economic shift because the fuel is connected with a source of food. The market for corn has been greatly affected by government subsidies. Now that corn is a major source of fuel, it has created a demand that economists call “price inelastic.” This means that demand stays strong even if prices rise.
2. More demand from the developing world for meat. In the last decade, the developing world has expanded its appetite to include more consumption of meat. But livestock eat grain too. As a result the increasing demand for meat in the world has also resulted in an increasing demand for grain. This source of demand has also been price inelastic.
3. Disappearing stockpiles. Because of the regulations of the World Trade Organization, the U.S. and Europe have been moving away from subsidies that created vast reserves of wheat and corn. Although subsidies are still existing in the U.S. and Europe, they are not exactly like they used to be. Governments in the past bought and stockpiled surplus food from farmers. Currently in governments, we are seeing movements of giving farmers subsidy payments without actually buying any of the food they produce.
4. Speculation. The volatility created by declining stocks around the world is being complicated by speculation. Investors are betting on the rise or fall of prices. With the lack of transparency of the people investing, prices are often being determined by speculation more than supply and demand. Many of the participants in the market are more gambling to make money than they are to determine the accurate prices of precious resources.
Salaries are not going up in developing countries to match the cost of basic food necessities. When the prices of food are fluctuating by complicated global markets, it is very difficult to adjust costs. If you throw in the current famines and droughts to these previous reasons of high food prices from the UN, we have an incredible problem.
I hope you can figure out a way to help feed someone. I have never seen a more critical time.
