Food Prices Crisis of 2007-2008: Lessons Learned

Fact Sheet

Office of the Spokesman

Washington, DC

March 3, 2011


"Fighting hunger is a priority for us and it demands our highest levels of patience and commitment"

~Secretary Clinton~

As we analyze and address rising global food prices, it is important that governments and policy makers incorporate the important lessons from 2007-2008.

What Happened in 2007-2008:

The International Food Policy Research Institute (IFPRI) reports that from January 2004 to May 2008, rice prices increased 224 percent, wheat prices increased 108 percent, and corn was up 89 percent. This price spike contributed to food insecurity worldwide, civil unrest in several nations, and generated appeals for food aid from 36 countries. Academics and policy makers have reached consensus on the effects that government policies had on food prices during the 2007-08 crisis. These lessons can help contain current food price increases.

Policies that Exacerbated the Crisis:

Export Restrictions: IFPRI concluded in their report Reflections on the Global Food Crisis that "three-quarters of the increase in the price of rice occurred in 2008-almost certainly because of adverse policy responses, such as export bans, from some major exporters." Export restrictions in producer countries were the primary cause of panic buying by major importers, pushing up world prices. Export restrictions also undermine long-term food security, as they disrupt price signals and dampen the supply response by local producers.

Panic Buying, Stock Building and Lack of Transparency: Some countries made larger-than-usual purchases of basic grains, thereby increasing stocks, without realizing that sufficient international supplies were available. These practices fueled the price increases they were supposed to mitigate. In some cases, those increased stocks resulted in massive losses and food waste.

Policies that Protected the Poor and Helped to End the Crisis:

Market-Based Responses Coupled with Targeted Safety Nets: Targeted safety nets were shown to be the best long-term response to price volatility. An OECD study notes that safety nets "support the purchasing power of the poor without distorting domestic incentives to produce more food, and without reducing the incomes of poor food sellers." They mitigate the temporary impact of food price increases on the poor, without disrupting price signals for farmers. Farmers have responded to the 2007-08 food price increases with record investment in agriculture in Russia, China, and India, leading to greater long-term food production.

Reducing Import Restrictions, Releasing Stocks and Reassuring the Markets: Importing countries that reduced tariffs and other taxes on key staples were able to lower domestic prices. Moves by governments to publicize information on food availability and their willingness to release stocks were the key measures that helped end the sharp hike in rice prices in 2007-2008. Many economists believe that the mere announcement that Japan would release 300,000 tons of rice to the Philippines reduced global rice prices.

Long Term Attention to the Agricultural Sector: Countries are addressing underinvestment in their agricultural sectors with the help of donors and other partners, decreasing their vulnerability to extreme and sudden crises. Some of the investment strategies include working to alleviate transportation, distribution, and supply-chain bottlenecks, promoting sound market-based principles for agricultural sector development and regional trade, encouraging private investment, and undertaking appropriate public investments and use of new agricultural technologies. Measures such as these are critical to improving productivity and meeting rising demand.

Emergency Donor Assistance: It is important for vulnerable countries to know that if there is a crisis, the global community will respond. In 2007-2008, the United States collaborated with multilateral organizations, non-governmental organizations, the private sector, and international partners to manage the crisis by providing billions of dollars in emergency financial assistance and food.

PRN: 2011/325