While studying economics in agriculture I came across an information about food crisis in 2007 and now want to share it in a post.
Well, in 2007 prices for rice, wheat, soya raised for more than 100%. And though the prices went down afterwards but not to the same level than before. So there were researches for reasons of that dramatical change.
As we already know for more than 150 years the food prices constantly fall down, so it is interesting to see what could change.
Among the reasons for the spike were the following: oil price rising, climate change/draught, panic buying, export restrictions, rising demand in Asia and biofuel policy.
Oil price rising influences food prices because of fuel need for agriculture and transportation. But according to calculations the share of oil prices in food price rise was about 1-2%. Yes, it had to move supply slope up/left that would lead to demand to go down, but demand was same and so it wasn't considered a main reason.
There was a draught in Australia in those years which is supposed to be caused by climate change. And since Australia is the second world largest exporter for wheat and there was just 10 mln t of wheat on the market instead for usual 25 mln t, it could be the reason for price spike but figures showed that supply worldwide was almost the same. So this climate reason in one region was balanced by favourable conditions in other regions.
Exactly in those years countries like Bangladesh and Nigeria decided to create a grain reservation fund and that's why their traders increased buying on the world markets. And since supply cannot be changed so quickly as occasional demand price went up. Lately it came out that a lot of grains were spoiled because of bad storage conditions.
Several countries that are considered core exporters announced restrictions for export to be able to control domestic prices. These were Argentina, China, Egipt, India, Russia, Ukraine, Vietnam. And these amounts could not be easily compensated on the markets. But subsequently in many regions of the world food price rise caused riots – in Latin America, Asia, Middle East and Africa. These export restrictions raised the world food index for about 13% according to World Bank calculations.
And now we are coming to the reasons which were thought to be the most powerful.
Growing welfare of China and India citizens. Since they want to eat more meat with their prosperity level, and to grow meat you need more grains to feed animals.
And US biofuel policy that caused demand rise in recent years. And since this ecological policy is not going to be changed we should understand that demand is going to be same or upper and the food price is in search of a new equilibrium now.
