Rising Food Prices Again in the Headlines

Rising food prices are a powerful source of unrest in poor countries, so the entire world monitors these prices carefully. Currently they are on the rise again, leading to new concerns. Indeed, this month they rose above the level of 2008, which had sparked food riots in several countries. According to a BBC report, the immediate causes are related largely to weather. 

The current spike in prices is being caused primarily by increases in the cost of sugar and, more importantly, cereals, according to the International Food Policy Research Institute.The price of wheat in particular has risen sharply. This is because wildfires last year in Russia, which accounts for 11% of global exports, resulted in an export ban, the institute's director of markets, trade and institutions, Maximo Torero, told the BBC.

The recent floods in Australia, which also accounts for 11% of global exports, has compounded the problem, he said. The price of corn has also risen, because of greater support for biofuels in the US and the increased price of oil, which makes biofuels more attractive. Droughts in Argentina, the world's second biggest exporter of corn behind the US, have also pushed the price up, Mr Torero said. "The situation is very tight. If we have more natural disasters, we could have a problem," he said.

Analysts say that as well as environmental issues, fast-growing world population and the increased demand for biofuels has further put pressure on crop supplies. "Rising food prices will have an effect almost all over the world but especially in poor countries where food and energy are the major things people spend their money on," said George Magnus, senior economic adviser to UBS. "There's a risk, I wouldn't say a huge risk, but some risk of higher energy prices and higher food prices being very destabilising in some countries. "We saw that in 2008 and in Mozambique last year and it's something to watch."

Always in the background, however, is the issue of agricultural subsidies in richer countries that wind up distorting the international prices of food. World Bank President Robert Zoellick has exhorted countries to drop protectionist policies and allow free trade to stabilize food prices. At the same time, The Economist suggests that in India rising food prices are partly a function of structural factors.

Food producers, hampered by land restrictions, archaic retail networks and bad infrastructure, fail to meet extra demand from consumers. Subir Gokarn, deputy governor of the central bank, estimated in October that a 39% rise in income per person in the previous five years might have created an extra 220m regular consumers of milk, eggs, meat and fish. Supplies have not kept up with this potential demand.

Therein lies the real problem. It is not just that we are trying to feed the current population. We are trying to feed them better, and we still have a projected 2 billion more who are expected to be sitting at the world's table over the next four decades.