Why the era of cheap food is over

Corn, milk, bread, and other farm products hit record high prices in 2006 – and will likely keep rising in 2008.

from the December 31, 2007 edition

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Will market forces correct the situation, as farmers switch to the high-earning crops?

Not as quickly as you might expect, though the European Union, the largest food exporter in the world, has suspended a "set-aside" program that had paid its farmers to leave 10 percent of their land fallow (so as to prevent oversupply).

Cereal prices are considered "inelastic," meaning that a 10-percent price increase tends to boost supplies by only one or two percentage points. While prices are high, they are also very volatile at the moment, which scares a lot of farmers off making the investments they would need to switch crops.

At the same time, the food market overlaps with the fuel market. Farmers can now sell their corn, their palm nuts, or their sugar to biodiesel refineries. So the price of palm oil, for example, traditionally the cheapest in Africa, is now set not by the cooking oil market, but by the fuel market.

It will not help that climate change and the accompanying floods and droughts will reduce cereal output in more than 40 developing countries, mainly in Africa, according to recent studies.

Where will food shortages be most acute?

Wherever the underlying trends of rising prices and scarcer supplies are compounded by special problems. Sometimes they are natural disasters, such as the cyclone and flooding that hit Bangladesh last November, wiping out many people's stocks of food. Sometimes they are man-made, as in the Democratic Republic of Congo, where continuing civil conflict and mismanagement disrupt the market, or in Zimbabwe, where inflation of more than 7,000 percent and a crumbling economy are threatening people already short of food.

"The hot spots of food risks will be where high prices combine with shocks from the weather or political crises,", says Dr. von Braun. "These are recipes for disaster."

What effect will high prices have on hunger-prevention programs?

A big one says the World Food Program (WFP), the UN agency in charge of emergency food aid, which reported last year that food aid flows had reached their lowest levels since 1973.

Food prices "are an incredible concern for us at the moment" says WFP spokesman Robin Lodge. "The same dollars don't buy the same amount of food as they used to," and donations to the agency are flat.

The WFP has been making a big effort to buy food from countries as near as possible to crisis zones, to cut transport costs, and in 2007 it had 15 million fewer people to feed than in 2006 because there were fewer major emergencies.

"But we are now about as tight as we can get, so unless donations go up there is no doubt about it, we will have to reconsider who we are feeding and the rations" says Mr. Lodge. "There is no other way around it."

Many food aid organizations are trying to buy more food locally. The FAO is reportedly working on a program to offer poor farmers vouchers for seeds and fertilizer to help them adapt to changing climate conditions.

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