This is a guest post by Puspa Sharma, MA Candidate in Global Finance, Trade and Economic Integration at the Josef Korbel School of International Studies, University of Denver.
Exponential increases in food prices in recent times have created enormous challenges to governments, national and international organizations, and aid agencies everywhere in the world. The World Bank has estimated that the rising food prices could push an additional 100 million people into poverty, thereby undermining the current efforts geared towards poverty reduction.
Increasing demand, decreasing supply, and the rising oil prices, which are in turn affected by numerous other factors, have been some reasons for the rise in food prices. Demand for cereal grains has been rising not only as a result of population growth, but also because of the growing middle class population in countries like China and India. Growing incomes have resulted in more demand for cereal grains directly and also more meat and dairy, which in turn has raised the demand for more grains as feed for the livestock. Another more important reason for the rise in demand for food crops is the development of bio-fuels, which have attracted a great deal of attention in recent times.
On the supply front, according to a publication by the International Center for Trade and Sustainable Development (ICTSD), droughts in Australia and Turkey and bad weather in Ukraine and parts of North America have resulted in less agricultural production which has caused food prices to rise. A more important, but often overlooked reason for the decrease in the supply of farm commodities against rising demand is that the subsidies that the developed countries have been providing to their agriculture sector have dampened world prices of those products and made the products of developing countries uncompetitive. This has had a tremendous impact in agricultural production in developing countries. In the absence of competitiveness and any other gains to be derived from agriculture, the developing countries have had less incentive to invest in agricultural infrastructure, agricultural research and development, and the like. As a result, agriculture production in these countries continually declined disrupting supply.
Then, who should take the blame of rising food prices? If we look at the demand side, we see that the demand has been rising in one part because of rising incomes in few developing countries, and on the other, because of the development of bio-fuels by the developed countries. On the supply side, drought and bad weather conditions are not something which are under human control, but less supply resulting from less production in developing countries owing to the agricultural policies of the developed countries definitely deserves attention.
