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The Cost of Rising Food Prices

Prepared by: Toni Johnson
August 22, 2007

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Food prices worldwide continue to climb upward (FT) at a pace not seen in decades. Few countries seem immune to the impact—with prices up 6 percent in Britain, around 7 percent in the United States and China, and 10 percent in India. A recent study from the UN’s Food and Agriculture Organization (FAO) estimates that its expenditures on imported foodstuffs for the least developed and most food-challenged nations will rise 9 percent from the previous year. Josette Sheeran, head of the UN’s World Food Program, told the Financial Times last month that rising food costs mean the agency will be able to reach “far less people.” The agency, which spent $600 million (PDF) for food in 2006, says its purchasing costs have risen 50 percent in the last five years. “We face the tightest agriculture markets in decades and, in some cases, on record,” Sheeran said, noting that the growing concern over the impact of biofuel demand on food prices.

Several factors contribute (Mercury News) to higher farm commodities prices—including rising transportation costs, global warming, and the demand from nations such as India and China, whose people are ratcheting up their meat consumption. Yet the FAO’s analysis asserts that much of the current price hikes “can be leveled against rising prices of imported coarse grains and vegetable oils,” commodities which feature heavily in biofuel production. A recent Foreign Affairs article argues that biofuels have “tied oil and food prices together in ways that could profoundly upset the relationships between food producers, consumers, and nations in the years ahead, with potentially devastating implications for both global poverty and food security.” The Economist notes that biofuels have caused the price of corn to reach levels comparable to those of crude oil, when comparing the two commodities based on price per unit of potential energy.

In a rebuttal in Foreign Affairs, former Senate Majority Leader Tom Daschle, who hails from corn-rich South Dakota, criticizes the continued “food-versus-fuel debate,” contending that biofuels can help the world meet its energy needs “without jeopardizing food security.” Daschle, a long-time ethanol advocate, argues that higher prices will be “a short-lived challenge” since the increased demand for corn will encourage farmers to grow more of it. However, one financial analyst notes that such a solution to higher prices “might prove to be temporary” since an increasing portion of corn crops will likely be used for biofuel instead of food. U.S. ethanol producers assert that rising oil prices are twice as responsible (PDF) for high corn prices as rising ethanol prices.

Antonio José Ferreira Simões, energy director for Brazil’s Ministry of Foreign Affairs, contends that biofuels offer an opportunity for developing nations to compete (IHT) in agricultural markets with developed nations, many of which “strongly subsidize” their farming. “Millions of jobs would be generated, thus increasing income, exports and food purchasing power of the poorest,” Simões wrote in the International Herald Tribune. On the impact of biofuels (FoodQualityNews.com), European food industry writer Anthony Fletcher says that “agriculture has always adapted to the changing needs of humans, and there is no reason why this shouldn’t be true now.”

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