During the food security crisis in Niger in 2005. Photo: Carlo Heathcote/Oxfam
Small farmers, big companies, developing countries: making sense of the global food prices crisis

Global food prices in 2011: Questions & Answers

World food prices reached a new historic peak in January 2011, exceeding prices reached during the food crisis of 2007-08. The spike in prices in 2007-08 took the total number of hungry people to over a billion - a sixth of the world’s population. Millions of people’s lives are under threat.

We've put together this Q&A to help make clearer the relationship between food prices and poverty.

Q. What’s the problem with global food prices?

A. Food prices have recently passed the levels reached during the food crisis of 2007-08. People around the world are starting to feel the impact and some countries like Tunisia, Egypt or Algeria are experiencing riots, caused in part by the increasing costs of food. The sudden food price hikes have pushed millions of people in developing countries further into hunger and poverty. And it’s not just high prices that are a problem. Prices are unpredictable, meaning that consumers can’t rely on a regular price, and producers are unable to plan their investments with certainty.

Q. How have food prices increased?

A. Since July 2010, prices of many crops have risen dramatically. Prices of maize increased 74%; wheat went up by 84%; sugar by 77% and oils and fats by 57%. Rice prices fortunately remain fairly stable with prices in December 2010 less than 4% higher than the previous year; meat and dairy also remained stable, but at high levels.

The UN Food and Agriculture Organization said its food price index was up 3.4% from December, marking the highest level since the organization started measuring food prices in 1990.

Q. What is the main cause of the price increases?

A. The causes are multiple and there is considerable debate about the relative importance of different factors, but key drivers are:

    1. Reduced production due to bad weather, possibly linked to climate change (for example extreme drought or floods, as occurred in Australia and Russia);
    2. Export restrictions and panic buying – usually caused by weather related shocks;
    3. Increased demand, both for biofuels – which takes land away from food production – and for food (especially meat);
    4. Financial causes such as the depreciation of the dollar, low interest rates and speculation;
    5. Increased oil prices which drive up the cost of agricultural essentials like fertiliser and transport.

      Q. Who’s winning?

      A. Big food trading companies have reported increased profits; supermarkets, seed and fertilizer companies are also doing well. Some big agribusinesses, which operate along the supply chain, and have a strong position in markets, are well placed to reap the benefits of higher prices.

      There are also serious questions about the impact of big institutional investors who have been involved in speculation on food prices – activity that is likely to exacerbate food prices rises and food price volatility.

      Q. Who’s losing?

      A. Vulnerable people in developing countries (as well as poor people in developed countries) are being hit hardest. Those already living on the edge are particularly vulnerable; the landless, slum dwellers and farm workers. If consumption decreases, it’s women and children who suffer most as men’s rations tend to be prioritized in many households.

      Q. Shouldn’t poor farmers gain from high prices?

      A. While high food prices are clearly a threat to many poor people in developing countries, they could also represent an opportunity for those who make a living from agriculture. However, many poor farmers are unable to take advantage of price increases for a number of reasons, including limited access to land and water and essential inputs like fertilizers, or the impacts of disasters and conflict.

      Many poor farmers may only have one buyer for their produce, who can dictate the price. They are vulnerable to changes in the weather, are often not able to store their food, and poor roads and other infrastructure can block them from getting to market. Farm workers are even less likely to benefit. These people are vulnerable as they are often working on short term contracts, with poor labor rights: they are very exposed as consumers to higher prices, but have little hope of getting a better wage for themselves.

      Q. Are the recent severe weather events having an impact?

      A. It’s not possible to link specific weather events to climate change. However, most scientists agree the world will experience more unpredictable and extreme weather events as a result of climate change. In the last year we’ve seen several devastating weather related shocks which have had dramatic impacts on food production. In July/August 2010, Russia experienced its worst drought in decades, destroying about 25% of the wheat harvest; an export ban was imposed, resulting in panic buying and a very rapid increase in prices. Floods in Australia in January 2011 dramatically damaged production in Queensland, a critical area of wheat and sugar production.

      Q. What are the differences between recent price rises, and those in 2007-08?

      A. We are not yet in the crisis situation of 2007-08. The current situation is similar to 2007-8, but there are some differences:

      • Global cereal stocks are much higher now than they were in 2007-08
      • Price rises are not yet global – in much of Africa prices remain stable, because of good harvests
      • We are not yet experiencing the extent of export restrictions seen in 2007-08, one of the key drivers of high prices
      • Prices are rising across all foodstuffs, but critically, staple foods, particularly cereals, eaten by many of the world’s poorest people are at a lower price than the peak of the crisis in 2007-08.

      Q. What will happen next?

      Food prices are likely to increase until the middle of this year unless governments intervene. The longer prices continue to increase, the greater the chances that the situation turns into a major food crisis on the scale of 2007-08 – or worse. If harvests are good in some countries prices may start to decrease, but unpredictability of prices will remain a problem.

      Q. What should governments do?

      A. Governments, both developed and developing, need to act quickly to ensure the recent food price increases do not spiral out of control. Governments must:

      • Prevent ongoing volatile food prices by increasing support (like subsidies for fertilizers and seeds) and investments in small scale agriculture to increase certainty in 2011 production;
      • Help people living in poverty cope with the immediate effects of high and volatile prices, through social protection programs.

      In the long term the root causes of food price increases need to be addressed by giving developing countries space to create the policies needed to promote national food production, increasing investment in agriculture – focused on small farmers and women – and ensuring small scale producers are supported in their efforts to adapt to climate change. Rich countries must come up with sufficient financial means to address both short and long terms needs.

      Q. Oxfam is calling for countries to spend more on agriculture and social protection but with limited budgets what should governments cut in order to pay for this?

      A. In 2008 the percentage of total global aid spending devoted to agriculture had fallen from 18% to just 4%, despite evidence that spending on agriculture pays dividends in terms of reducing poverty and inequality, promoting sustainable growth and protecting the environment.

      Oxfam believes strongly that overall aid spending should be going up, in line with promises made by developed countries. Aid should also be targeted and coordinated better, in order to increase its effectiveness. Less could be spent on consultants for example.

      Read more

      > Read our report: Double-Edged Prices – Lessons from the food price crisis: 10 actions developing countries should take (October 2008)

      > Watch the video: Does aid work?

      > Learn: The Robin Hood Tax - Innovative financing mechanism?

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