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Rising Food Prices: 10 Questions Answered

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The latest figures on food prices show that after eight months of straight increases there was a slight dip in March. It’s too early to say whether this is the start of a decline and much will depend on what happens in coming weeks. In the meantime the effects of hikes have already been felt around the world.

ROME -- The causes and the effects of the current high food prices are diverse. To help you get a grasp of what it all means, here are the answers to 10 key questions:

  1. How high are food prices really? The global food price index produced by the UN Food and Agriculture Organization (FAO) reached a historic peak of 237 points in February, well above the peak of 213.5 reached in 2008. Then in March it dropped slightly to 230, after falls in the price of oils and sugar in particular. (See interactive table at the bottom of this page)

  2. So prices are on their way down again then? The drop in March was certainly a welcome respite, but it would be premature to conclude that the general upward trend in food prices has been reversed. And even with the dip, prices are still 37 percent above March of last year. Experts are waiting for information over the next few weeks to see if farmers are planting more to meet demand. Then it might be easier to predict the trend.

  3. Is there any good news? Supplies of major food crops are more plentiful than two years ago. Harvests in southern and eastern Africa have been good, keeping the cost of staples such as white maize stable. Reserves of rice, wheat and white maize (the most important staple food crops in many vulnerable countries) are adequate and that lessens the risk of a repeat of the 2007/08 crisis.

  4. Do events in the Middle East and North Africa have an impact in all this? Events in the Middle East and North Africa are all contributing to uncertainty and price volatility – as are the effects of the destruction in Japan. Then again, the FAO believes wheat price increases are likely to dip in the coming months as tensions in north Africa delay imports and dampen global demand (Egypt is the world’s largest wheat importer).

  5. What sort of countries are vulnerable to rising food prices? High food prices are a problem for poor countries that have to import a lot of food to feed their populations. Countries will also be vulnerable if they already have high inflation, have limited foreign currency reserves and if their local currencies are depreciating against the US dollar. The World Bank says that 44 million people have fallen into extreme poverty and hunger in developing countries as a result of the food price increases since last June.

  6. How do people in poor countries cope? In some of the countries where WFP works, there are households that spend as much as 60-80 percent of their income on food. In these situations, higher prices clearly hit hard. Families cut the number of meals they have a day, they buy cheaper, less nutritious food and spend less on things like schooling and medicine.

  7. Aren’t high food prices good for poor farmers? High food prices could represent an opportunity for people who make a living from agriculture. The trouble is that many of these people don’t produce enough food even for themselves, let alone to sell any. Many do not have access to the markets where prices are higher nor the resources they need for inputs like fertilizer to increase their yields.

  8. How do high food prices affect WFP? Rising food prices affect WFP in two ways: it costs us more to purchase food for the hungry and, the number of people needing food assistance increases. If prices continue to rise, or even stay at the same high levels for the rest of the year, WFP will face a serious budget gap. We will then be forced to make the kinds of painful decisions that we faced in 2008 – reduce rations, decrease beneficiaries or seek additional resources.

  9. How much food does WFP buy? In 2010, WFP bought US$ 1.25 billion worth of food commodities. Of that, US$ 975 million came from developing countries. WFP action to forward purchase food while market prices were relatively low in 2010 has helped to minimise the impact on our budget, but every 10 per cent increase in the price of our food basket, costs us an additional US$200 million a year to buy the same amount of food.

  10. Any reasons to be cheerful? It’s encouraging that these issues will be firmly on the agenda of the G20 meetings this year, along with ways to address possible reactions such as export bans. Bans should not be allowed to impact humanitarian work. Governments are also expected to discuss the possibility of establishing food reserves close to potentially food-insecure areas.

Click here to view FAO's interactive Food Price Index.