FACTBOX-2008 food price crisis -- what caused it?

by Reuters
Friday, 10 June 2011 03:31 GMT

A trader sleeps on sacks of onions at a wholesale market in the western Indian city of Ahmedabad, July 17, 2013. REUTERS/Amit Dave

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June 10, (Reuters) - For nearly three decades, food prices were cheap, the world seemingly able to meet its needs, with real prices reaching an all-time low early last decade.

But in 2005, global prices of wheat, rice and other cereals began to rise and then surged in 2008, with rice leaping from about ${esc.dollar}350 to nearly ${esc.dollar}1,000, triggering panic and unrest.

Food prices have again surged and reached new highs earlier this year, according to the U.N. Food and Agriculture Organization's price index. Bad weather, rising oil prices and surging demand for food have been blamed

In a major 2010 study, the Washington-based International Food Policy Research Institute studied the causes that led to the 2008 food price surge.

It concluded the crisis was not primarily driven by declines in crop yields or stocks, nor rising demand for meat and feed grains or even futures market speculation.

Instead, the crisis was triggered by:

-- Growing demand for biofuels, which has driven up prices of corn and soybeans

-- Higher energy prices, which makes biofuels profitable and crops that feed them more sought after. Higher oil prices also boosts farm production costs, such as diesel.

-- Falling value of the U.S. dollar

-- Export bans and panic buying, particularly for rice, of which only about 6 percent of the global crop is exported, making international prices more volatile.

-- Bad weather, particularly triggered by cuts in wheat production in Ukraine, Australia and Argentina.

The authors found rising demand from India and China wasn't a cause "because at the national level both countries are largely food secure, so they rarely rely on substantial food imports, except some oilseeds, particularly soybeans for China."

But more broadly, growing global demand for food, and declining yield growth for some crops, such as wheat and rice, were also factors.

The authors warned of the real risk of more food price shocks and point to several major long-term challenges:

-- Rising energy prices, which leads to the diversion of crops from food or feed to ethanol and biodiesel.

-- Climate change and damage to farmlands such as erosion or salinity.

It also recommends food production be scaled up in poorer nations that are heavily dependent on food imports.

(Reporting by David Fogarty; editing by Bill Tarrant)

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