The Wellsprings of the 2007-08 Food Crisis

With wheat and maize rising in price by 60 percent and 50 percent respectively since June, concern is rising over the cause of food price increases and what can be done about them.

A new 142-page report by the International Food Policy Research Institute in Washington, DC takes an exhaustive look at the combination of factors that drove prices through the roof in 2007 and 2008 and seeks to explain how to prevent a recurrence of them. The report was written by Shenggen Fan, the IFPRI's director general, and Derek Headey, a research fellow at the Washington-based organization, one of 15 centers supported by the Consultative Group on International Agricultural Research, an alliance of 64 governments, private foundations, and international and regional organizations.

Although it was widely believed in the wake of the 2007-2008 crisis that increased demand in China and India, falling agricultural yields and market futures speculation were the causes, the IFPRI says, it was actually a combination of increased energy costs, growing demand for biofuels, depreciation of the US dollar and trade shocks related to export restrictions, panic purchases, and unfavorable weather, the report says. Between 75 million and 133 million people fell into malnutrition because of the crisis, with the greatest consumption losses falling on women and girls.

Without the reforms recommended in the report, "it is only a matter of time before another food price crisis hits," Fan said in a prepared release.

Unfortunately, most of the report's recommendations to avert a recurrence appear to be beyond the reach of the world's governments right now. Although the report, titled Reflections on the Global Food Crisis, recommends freer and more secure trade in agricultural commodities as well as addressing climate change, resource degradation and other long-term threats to agricultural productivity, the Doha Development Round of World Trade Organization negotiations, which deals with freer agricultural trade, has been stalled since 2001 – nine years – despite the efforts of the world's governments to resume them.

WTO chief Pascal Lamy has invited the 153 members of the WTO to meet on Nov. 30 to restart the process. Both the G20 and Asia-Pacific Economic Cooperation summits earlier this month have recommended restarting the talks, and, according to Reuters, small groups of key figures have been meeting over recent months to seek to determine how to move the talks forward.

But despite talk of a "greatly improved atmosphere among negotiators," it is questionable that the talks will go anywhere. While most other WTO members say the US is the stumbling block because of its massive subsidies to US farmers and the commitment of the US to global agricultural exports, Washington blames Brazil, China, India and other emerging economies for seeking to protect their agricultural sectors from low-cost, high-volume mechanized agricultural exports. The US subsidies in turn are blamed for keeping out cheap exports grown in lush tropical climates, including Africa.

Likewise, the question of addressing climate change appears stalled for the foreseeable future as long as the United States, the world's second-biggest producer of greenhouse gases after China, remains against taking any action. Reversing climate change at this point is problematical at best, climate scientists say. Action on legislation stalled in the US Congress prior to Nov. 2 midterm elections, The loss of the House of Representatives by Democrats and the election of large numbers of Republicans who deny that human activity is the cause of global warming,apparently out of the bizarre belief that most of the world's collective scientific community is somehow out to defraud them, probably dooms any action.

Another of the recommendations – scaling up social safety nets in potentially food-insecure countries, appears difficult during the continuing global financial crisis and the diminished economic standing of many of those countries, such as Cameroon, Democratic Republic of Congo, Ghana, and Nigeria. The report also recommends encouraging agricultural production in at least some of the countries now heavily dependent on food imports, which also appears problematical.

The best means of improving food security is investment in raising agricultural productivity in developing countries, the report says. Biofuels, it adds, should be made more "food friendly" by minimizing the diversion of food crops and by involving smallholder farmers in their production.

"The last crisis, the report indicates, contains some important lessons. Many, the authors say, cite surging demand from China and India, including the shift in their diets toward more meat consumption, and hence greater demand for feed cereals. However, Both China and India are food-secure at national levels and they rarely rely on substantial food imports except for oilseeds.

While Chinese demand for soybeans has also grown dramatically, the increase has been largely accommodated by planting area expansions in Brazil and Argentina, While China and India did deplete their food stocks of major cereals, "there is no direct evidence that declines in their stock influenced expectations elsewhere," the authors note.

"Another perennial research literature that was prominent before the food crisis was declining yield growth in cereal production and related trends, such as low levels of agricultural research and development and land degradation, the report found. "These problems are certainly significant in some parts of the world, but the real linkage to international prices must come from global supply and demand."

And, while production has declined, the bulk of the decline is explained by falling production in the former USSR and Eastern Europe, which didn't affect international trade,

The rice crisis, in which the price soared from US$300 per metric ton to over US$1,100 before falling back to about half that today, was by far the most visible manifestation of the 2007-2008 crisis. The authors find that financial market speculation may have played some role, but not a dominant one. Export restrictions and panic purchases, they write, turned a critical situation into a full-blown crisis. This was especially true of rice but also applied to wheat and maize.

The report also exhorts donors to honor their financial pledges despite the global economic downturn. "To their credit, many aid donors have said they would increase agricultural aid, Fan said. "In 2009, the G-8 nations made US$20 billion in commitments to food security and agriculture. They need to keep their promises."