Food Prices

Cecile Obeid, Ph.D. (c)

Food Prices
Food prices are affected by several factors.
• Weather and temperature
• All crops are affected by the weather during their growing season.
• If the growing season is too wet, too dry, too cold, or too hot, crops cannot
thrive.
• A scarcity or shortage of a crop may increase its price to consumers.
• When a good growing season results in a surplus, food prices may drop.

• Pests and disease

• Like weather, pest damage and disease can destroy a crop or affect
livestock production.
Food Prices
• Transportation costs
• When the price of oil and gas are high, it costs more to transport food
through the steps from farm to plate (for example: to the processing
facility, to the store etc…)
• Labor costs
• The agri-food system requires a lot of working people. These include
farmers, packers, processors, and retailers.
• If the cost of labor increases (if minimum wage is increased, for example),
food prices may increase.
• Other
• Political and economic situations can influence food prices, either by
increasing or decreasing them.

https://www.youtube.com/watch?v=1PwSgBrkRoo
Global Food Prices
Continue to Rise
Sophie Wenzlau; April 11, 2013
Vital Signs, Worldwatch Institute
Global Food Prices
• Continuing a decade-long increase, global food prices rose 2.7% in 2012,
reaching levels not seen since the 1960s and 1970s.
• Between 2000 and 2012, the global food price index increased 104.5%, at
an average annual rate of 6.5%.
• Some price volatility (instability) is strongly influenced by weather shocks.
• However, the recent upward trend in food prices and volatility can be traced
to additional factors including:
• Climate change
• Rising energy and fertilizer prices
• Poor harvests
• National export restrictions
• Rising global food demand
• Increasing demands for biofuel production
Global Food Prices
World Food Prices (1960-2012)

World Bank, Worldwatch Institute

Global Food Prices
• International food price trends, measured in terms of consumer
prices (not those paid to producers), varied by commodity in
2012.
• Global cereal and dairy prices have shown significant volatility in
recent years, whereas meat prices have fluctuated less.
Cereal Prices
• Due to the ubiquity of wheat, corn, and rice in global diets, changes in
the price of cereal grains generally affect consumers more than
fluctuations in other foods.
• Since food prices began increasing in the early 2000s, cereal prices have
jumped more than 80% and exhibited significant volatility.
• Continuing this trend, global cereal prices increased 12.3% in 2012.
• In January 2013, international wheat prices alone were 17% higher than
they were a year earlier.
• Unfavorable weather conditions, including severe drought in the U.S.
and Eastern Europe, drove cereal prices up.
Cereal Prices
• High cereal price volatility can have devastating consequences for the
world’s poor.
• The food price spike, driven by a significant increase in global cereal
prices, drove 44 million people into extreme poverty.
• High and volatile cereal prices can reduce income and increase income
instability.
• High cereal prices are also associated with rising malnutrition as poorer
people are forced to eat cheaper, less-nutritious food, as well as less
quantities overall.
Meat Prices
• Global meat prices have fluctuated less than cereal prices.
• Global meat prices increased by less than 1% between 2012 and
2013.
• Meat prices increased slightly (5.5%) between July 2012 and
January 2013 due to higher grain, and thus animal feed, prices.
Dairy Prices
• International dairy prices have exhibited significant volatility
since 2006.
• Prices more than doubled in the period of 2006-2013 compared
to those between 1990-2005.
• Total dairy trade increased, and per capita dairy consumption
increased as well.
• The international market remains sensitive to sudden changes in
milk production because of low government stores in the
European Union and U.S.
Factors Affecting Global Food
Prices
• The level and volatility of food prices in the last decade have been
influenced by various forces affecting global food supply and demand.
• Population growth and increasing affluence –predominantly in Asia–
have led to rising food demand since 2000, which in turn has triggered
higher global food prices.
• Between 2000 and 2010, Asia’s population grew 12%, from 3.7 billion to
4.2 billion people.
• Asians accounted for 60% of the world’s population in 2010.
• Meanwhile, wages nearly doubled in Asia from 2000 to 2011.
• However, wages increased only 18% in Africa and 15% in Latin America
and the Caribbean.
Factors Affecting Global Food
Prices
• Rising energy and fertilizer prices drove up food prices as well.
• They added the costs of production, processing, transportation,
and storage.
• The average price of energy during 2000-2012 was 183.6% higher
than the average price during 1990-1999, while the average price
of fertilizer increased 104.8% in the same period.
Factors Affecting Global Food
Prices
The recent upward trend in food prices and volatility can be traced to:
• Weather shocks
• Climate change
• Rising energy and fertilizer prices
• Poor harvests
• National export restrictions
• Rising global food demand
• Increasing demands for biofuel production
Biofuels
• Perhaps one of the most significant factors affecting global food prices
has been an increase in biofuel production in the last decade.
• Biofuels are produced through modern biological processes like
agriculture.
• This is in contrast to the fuel produced by geological processes which
form fossil fuels (like petroleum and coal) from decomposed plants and
animals that have been buried in the ground for millions of years.
• When the source of the biofuel can regrow quickly, biofuels are
considered a form of renewable energy (unlike fossil fuels).
• Examples of biofuels
• Ethanol: made from corn in the U.S. and sugarcane in Brazil
• Biodiesel: made from vegetable oils and liquid animal fats
• Green diesel: derived from algae and other plant sources

https://www.youtube.com/watch?v=qy_aEqs7skg
Biofuels
• Biofuels have been around for a very long time.
• At the start of the 20th century, Henry Ford planned to fuel his Model T
with ethanol, and early diesel engines were shown to run on peanut oil.
• However, discoveries of huge petroleum deposits kept gasoline and
diesel cheap for decades, and biofuels were largely forgotten.
• With the recent rise in oil prices, along with growing concern about
global warming caused by carbon dioxide emissions, biofuels have been
regaining popularity.
• Much of the gasoline in the U.S. is blended with a biofuel: ethanol.
• Some cars in Brazil can run on pure ethanol rather than as additive to
fossil fuels.

https://www.youtube.com/watch?v=igUtLwruUjA
Biofuels and Global Food Prices
• Using food crops for fuel (demand for biofuels) has led to an increase in global
food prices due to a significantly high demand for some agricultural
commodities.
• The high demand for some agricultural commodities, such as sugar, maize,
oilseeds and palm oil, has the potential to affect food security at both the
national and household levels mainly through its impact on food prices.
• There has been a surge in the production of biofuels in Europe and the U.S.
since the early 2000s, backed by policies designed to cut use of fossil fuels.
• An estimated 93 million tons of wheat and coarse grains, more than half of
their production, were used for ethanol production in 2007, double the level
used in 2005.
• If biofuel production continues to expand, the price of biofuel crops
(particularly maize, oilseed crops, and sugar cane) will continue to increase.
Biofuels and Global Food Prices
• Not only is biofuel production leading to rising food prices, but there is
also an association between biofuel production and deforestation
(removal of trees).
• Agriculture is the largest cause of deforestation.
• The removal of trees without sufficient reforestation has resulted in
damage to habitat, biodiversity loss, extinction of species, climatic
change, and aridity.
• Deforestation also has adverse impacts on the biosequestration of
carbon dioxide.
Biofuels and Global Food Prices
• Due to the negative impacts associated with biofuels, the European
Union agreed to limit the use of food-based biofuels at 7% in 2015.
• A new research study has shown that if the European Union cut the use
of biofuels to zero, then global vegetable oils would be 8% cheaper by
2030.
• Cutting the use of biofuels would lead to modest reductions in global
food prices, global poverty rates, and net global welfare improvements.
Conclusion
• There is reason to believe that food commodity prices will be both
higher and more volatile in the decades to come.
• As climate change increases the incidence of extreme weather events,
production shocks will become more frequent.
• Food prices will also likely be driven up by population growth, increasing
global affluence, and stronger linkages between agriculture and energy
markets.
• High food prices tend to aggravate poverty, food insecurity, and
malnutrition.