Why the record rise in world food prices?

An unprecedented surge has rocked world food prices in September 2021, showing a year-on-year surge of almost 33 %. The spotlight is on the monthly statement from the Food and Agriculture Organization of the United Nations (FAO), revealing a rise of more than 3 % since July, reaching heights not seen since 2011.

The FAO's food price index, a sort of barometer reflecting the combined oscillations of a variety of commodities, including vegetable oils, cereals, meat and sugar, reveals these movements month by month. It translates current prices into a scale of indices, compared with average levels from 2002 to 2004.

This indicator is the standard by which food prices are measured. Nominal prices, as they are commonly known, are adjusted for inflation. While nominal prices reflect the monetary cost of acquiring food on the market, real prices, adjusted for inflation (what economists refer to as 'real prices'), are much more relevant for understanding food security - i.e. the ease with which people can access their own food.

Generally speaking, the prices of all kinds of goods and services rise faster than average incomes (although there are exceptions). In short, inflation means that consumers have to pay more per unit of food (because of the rise in nominal prices), while having relatively less money available for these purchases, given the simultaneous rise in the prices of everything else except their wages and other income.

Last August, I looked at the FAO's inflation-adjusted food price index and discovered that real world food prices were higher than in 2011, when food riots helped topple governments in Libya and Egypt.

Based on real prices, it is now more difficult to buy food on the international market than in almost any other year since the United Nations began recording data in 1961.

The only exceptions were 1974 and 1975. These spikes in food prices emerged following the explosion in oil prices in 1973, generating rapid inflation in various sectors of the world economy, including food production and distribution.

Now, what is driving food prices to historic highs?

Fuel prices, adverse weather conditions and Covid-19

The factors influencing average world food prices are undoubtedly complex.

Prices for different goods fluctuate according to universal factors as well as variables specific to each product and region.

For example, the surge in oil prices that began in 2020 has affected the prices of all the foodstuffs included in the FAO index, amplifying the costs of producing and transporting food.

The labour shortage caused by the Covid-19 pandemic reduced the availability of workers to sow, harvest, process and distribute food, providing another universal reason for the surge in commodity prices.

In fact, the average real price of food has been rising since 2000, reversing the downward trend that began in the 1960s.

Despite global efforts, which are partly in line with the hunger reduction targets set by the United Nations Millennium Development Goals and subsequent Sustainable Development Goals, prices have systematically hampered access to food.

Crucial crops

No product has systematically triggered the average rise in real prices since 2000. However, the edible oil crop price index has soared significantly since March 2020, mainly driven by vegetable oil prices, jumping 16.9 % between 2019 and 2020.

According to FAO crop reports, this surge is due to increased demand for biodiesel and adverse weather conditions.

Sugar, meanwhile, is having a marked impact on food price rises. Here again, bad weather, particularly frost damage in Brazil, has reduced supply, pushing up prices.

Cereals have had less of an impact on the overall rise in prices, but their global availability is crucial to food security.

Wheat, barley, maize, sorghum and rice guarantee at least half of the world's food supply, and up to 80 % in the poorest countries.

Global stored stocks of these crops have been declining since 2017, as demand outstripped supply. This decline in stocks has helped to stabilise world markets, but prices have soared since 2019.

Once again, the underlying reasons for individual variations remain complex. However, one element worth examining is the frequency with which, since 2000, the FAO has mentioned "unpredictable" and "unfavourable" weather conditions as a cause of "reduced harvest forecasts", "crops affected by weather conditions" and "reduced production".

Emergency measures

As droughts in Canada deplete wheat harvests, European concerns about pasta prices seem to be growing. However, as the real grain price index approaches the levels that turned bread price riots into full-blown uprisings in 2011, it becomes imperative to consider how communities in less prosperous regions can address these tensions and prevent unrest.

Our technological know-how and socio-economic structure are struggling to cope successfully with unpredictable and adverse weather conditions.

It is now time to plan for food supply in a world where warming of more than 2°C seems increasingly plausible, according to the latest report from the Intergovernmental Panel on Climate Change.

Rising tariffs will erode food security, and if there is one constant in the social sciences, it is that hungry people will take radical action to preserve their livelihoods, particularly in areas where leaders are perceived to have failed.