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Why are current world food prices so high? (PDF)
M. Banse, P. Nowicki, H. van Meijl, Wageningen University
World agricultural prices are very volatile which is due to traditional characteristics of agricultural markets such as inelastic (short run) supply and demand curves (see, Meijl et al. 2003).1 The volatility is also high because the world market is a relatively small residual market in a world distorted by agricultural policies.2 The combination of high technological change and inelastic demand cause real world prices to decline in the long run (trend). The prices, however, of many (major) agricultural commodities have risen quickly over recent years (p. 6)
… A combination of record low global inventory levels, weather induced supply side shocks, surging outside investor influence, record oil prices and structural changes in demand for grains and oilseeds due to biofuels have created the high prices. The question is whether it is a coincidence that the past and current high price levels coincide with high oil prices or whether other reasons for the current price peak are more important. (p. 14)
… The increased biofuel demand between 2000 and 2007, compared with previous historical rates of growth, is estimated to have accounted for 30 percent of the increase in weighted average cereal prices during 2000-07.
(p.22, from a International Food Policy Research Institute (IFPRI) study)
… If all [biofuel directives and initiatives] are implemented together and technological change stays on the historic trend, then the impact on world prices is substantial and the long term trend of declining world prices in the reference scenario might be dampened or reversed. The arrival and impact of second-generation biofuels is uncertain.
… From our work it is clear that the price increases have several roots and that a normally functioning market will in time provide a certain degree of corrective action. But policy/political decisions can prevent the market from doing so. In any case, the time lapse for the market to act does not remove the acuity of the price distortion that affects the poorest people, and urgent intervention is necessary to alleviate the effects of short”term price peaks. Natural resource prices lead basic food commodity prices; the rate of growth of the former has historically been (and is again at present) higher than the latter. Biofuels create a more direct link between food and fuel prices, if fuel prices are high: the long-term trend of declining real food prices might be dampened or reversed. (p. 29)
The Wageningen report is interesting and worth reading. The press release is more tendentious and not especially informative.
The report is based on talks with some experts, existing literature and the authors’ own research. It’s like a white paper for policymakers.
The report seems to reflect the thinking of agricultural economists in the developed world. (My guess is that the ideology is not that different from the World Bank – that’s what makes the leaked report from the World Bank so surprising.)
The authors of the report have a definite program and set of values, for example:
- Not particularly interested in soil health or ecological issues.
- Committed to the world market as a cure-all for hunger and agricultural issues.
- Don’t emphasize differences between industrial agriculture and small-scale agriculture.
- Open to occasional intervention to prevent starvation and hardship (though they oppose government intervention in general).
For a different perspective, see the work of people in the food sovereignty movement, which claims the “right of peoples to define their own food, agriculture, livestock and fisheries systems,” in contrast to having food largely subject to international market forces.”
Concerns about skyrocketing food prices and growing pressures on land and water were the focus of a high level conference in Brussels yesterday (3 July). Most participants agreed that agricultural markets and farm output need to be improved in order to feed the planet’s growing population.
During a press conference on the margins of the conference, Barnier repeated an earlier call for the creation of regional models, based on the CAP, whereby developing states would cooperate more closely in agricultural matters. While such a model should not lead to excessive protectionism, developing states should also not be subjected to the “brutal liberalisation” of global agricultural markets, he said.
Barnier, who will chair the meetings of the EU’s agricultural ministers for the next six months under the French EU Presidency, is a strong supporter of keeping a strong CAP and has been using the food crisis as an argument against further market reforms of the policy.
(4 July 2008)
Reclaiming Corn and Culture
Wendy Call, YES Magazine
For 14 years, NAFTA has displaced farmers and spurred migration. The answer from Mexico’s grassroots: co-ops and fair trade.
“The fatal date has arrived,” announced one of Mexico’s largest newspapers, El Universal, on New Year’s Day 2008. The last trade barriers between Canada, Mexico, and the United States fell on January 1, completing the North American Free Trade Agreement’s 14-year phase-in process. While this milestone passed with little comment in the United States, more than 100,000 teachers, college students, activists, farmers, and ranchers marched in Mexico City.
The New Year’s Day protesters demanded their government reopen negotiations on NAFTA. When that didn’t happen, about twice as many took to the streets again on January 31, 2008. Another newspaper summed up the situation: “Head-on struggle against NAFTA explodes.”
For nearly two decades, Mexican farmers have spoken out against NAFTA-a trade agreement they suspected from the beginning would wreak havoc on their country’s agricultural sector. They have sounded their voices loudly in Mexico’s capital, while quietly developing their own answers to NAFTA in farming communities throughout the country-working models of “fair trade” that consider people and the environment, not just profit margins.