The Hunger Report

The Challenge of Rising Food Prices

The challenges discussed so far—starting conditions, governance, environmental degradation, conflict—stem mainly from internal factors in individual countries. The rise in food prices in the last two years is something quite different. Every country is experiencing higher food prices, although poor countries are suffering more than others. More than a hundred million additional people have been added to the ranks of the world’s poor³⁹ and 75 million more are hungry,⁴⁰ the result of a confluence of factors described by World Food Program Executive Director Josette Sheeran as “a perfect storm hitting the world’s hungry.”⁴¹ Below are some of the most salient causes.

• Rising incomes in some parts of the developing world. When people leave poverty behind them, one of the first things they buy with their additional income is an improved diet, and that usually means eating protein-rich foods they could not afford previously. But grain supplies are already being outstripped by demand, and it takes roughly 7 kilograms of grain to produce a kilogram of meat.⁴² China and India each have more than a billion people, and while large numbers of people remain poor and do not enjoy better diets, those who are prospering in these rapidly expanding economies have added to the demand for grains to be used as animal feeds. Increasing agricultural productivity is the key to making sure all people have enough to eat
• Rising energy costs. Energy prices and food prices are intertwined in several ways. Oil prices affect the costs of transporting farm inputs and products to market, as well as moving in-kind food aid shipments from the United States or other donors to nations where people are hungry. Some developing countries—the oil exporters—may benefit from the rise in prices, but the vast majority of countries import most or all of their oil.
• Demand for biofuels. Biofuels contribute to higher food prices by diverting grain and land from food to energy production. Through mandates, tariffs and subsidies, the U.S. government has encouraged this shift. Currently, one-third of all corn grown in the United States is used to produce ethanol.⁴³When oil was selling for $120 per barrel, it was estimated that ethanol subsidies raised the price of a bushel of corn from $5.20 to $6.81.⁴⁴ In addition to raising prices, biofuel production in the United States has caused farmers to plant more corn in place of other crops, raising the price of those crops as well as decreasing their supplies.
• Export restrictions and bans. By July 2008, 14 countries had either banned or restricted rice exports, 15 countries had capped or halted wheat exports, and more than a dozen had limited corn exports.⁴⁵ As a stark reminder of how trade policies affect food prices, India, the world’s second-largest exporter of rice, announced that it was banning rice exports starting in November 2007. The Philippines and Vietnam, two other major rice producers, quickly followed suit. The price of rice on world markets jumped from just below $400 per metric ton to $1,100 in less than six months, a terrible blow to low-income rice-importing countries.⁴⁶
• Bad weather. A number of top grain-producing countries have had shortfalls in recent years due to poor weather conditions. Back-to-back droughts in Australia in 2006 and 2007 resulted in a 4 percent reduction in global grain exports.⁴⁷ Shortfalls in the European Union, Canada, and Eastern Europe have also been attributed to unfavorable weather conditions. As a result of this and the other factors listed above, the U.N. Food and Agriculture Organization reported that by the end of 2008, grain reserves would be at a 25-year low.⁴⁸

The global hunger crisis highlights not only the importance of external factors beyond the control of poor countries, but also the deep interconnectedness of all countries and the reason development is a global issue, not one confined to individual countries. The policies of national governments can potentially reverberate internationally. The domestic policies of developed countries are outside the control of developing countries, but as we’ll see more evidence in coming chapters, these policies have also contributed to the severity of the hunger crisis.