The Rising Food Prices

The constant rise in food prices has been a major concern all over the world and consequently created a global crisis. The steady increase has seen citizens of various countries holding demonstrations to express their plight due to this condition.

This has caused political unrest in the recent months, and therefore, the issue of hunger and food insecurity has become a serious concern for many countries globally, both developed and developing. Food is a basic necessity and should be made available to every single person, which, of course, has not been the case in the recent past, especially in the developing countries. Several factors have been blamed for the rise, top of which is the world population growth, increased demand for food resources, the rise in oil prices, decrease in world food stock piles and financial speculations (Chakrabortty 42). The United States Department of Agriculture recently released a statement, predicting that the output of some key commodities such as food were to decline globally, while the demand was to increase exponentially across the globe. This was another way of stating that the prices of food and other basic commodities were to increase tremendously. After this report, the prices, indeed, increased with corn increasing by up to 94%, soybeans by around 51% and wheat hitting a record 80%.

We Will Write a Custom Case Study Specifically
For You For Only $13.90/page!

order now

The current food prices have even exceeded the 2008 prices and the food price index is at its highest peak ever achieved in the past. The Food and Agriculture Organization estimates that more than 100 million people in the world are in urgent need of food but unfortunately they may not be able to access it due to the reduced supply and high prices. In addition to this condition, 860 million people are already experiencing chronic food insecurity and something has to be done very fast before another major food crisis erupts (Nelson 111). These food shortages have had the effect of thrusting the food prices very high globally, and currently 36 countries are experiencing food crisis. The prices of food have more than doubled in several countries and most of the individual’s incomes are spent majorly on food and other basic necessities.

In some countries, the amount, spent on food, has even hit around 60% of the household income. This has pushed many people, especially in the developing nations, way below the poverty belt. The World Bank has noted that some developing nations have their food price indexes hitting as high as 36%. There has been a steep increase in the prices of staple foods like corn, rice, wheat and soybeans over the past few months, leading huge amounts of money spent on food alone. But people have to ask themselves the reason behind this exponential increase in prices of food just so suddenly.

Some commentators have blamed the food crisis on the increased rate of growth of the global population. This population growth rate has outpaced the rate of grain production, and hence, there exists a higher demand than supply. This deficit has led to producers hiking the prices of food due to the high demand. For the balance to be restored either the production of grains has to be increased or the rate of population growth reduced (Brown 52). The high demands for food have also been noted in the growing nations due to their higher purchasing power, resulting from the faster growth. The growing nations have had rapid economic growth, and therefore, their consumers have had higher purchasing power due to high amounts of money in the economy.

This has increased their demand for varieties of food products, thus, shifting the demand from the traditional staple foods to other foods with higher values like soybeans, milk and meat. There has also been poor weather in most food producing countries over the recent past, and this has led to reduced food production, and hence, low supply. Australia, for instance, has faced around 6 years of bad weather and this has had a great impact on the production of rice, and thus, the most likely reason for increased rice prices. Poor weather also results into higher costs of production since more inputs have to be used in production such as the irrigation, use of green houses etc. Bad conditions also result into low quality products that are, however, sold expensively due to low supply (Chakrabortty 42).

The United States Department of Agriculture also pointed out that the dry weather in Russia, the floods in Australia and the poor weather in South Africa led to the food supply reduction in the global market. More corn was also used in the production of ethanol with speculators expecting higher production, which of course never occurred. Cattle also were fed on more grains due to the bad conditions and this further heightened the competition for food. This was encouraged due to the higher lifestyle, embraced by many people globally, and thus, demanding higher order foods such as animl products. Besides, higher oil prices has also led to high food prices globally, since there is a direct relationship between fuel prices and food prices in the world market. The rise in oil prices has led to an increase in the price of fertilizers, used in food production.

In the manufacture of fertilizers, fuel is required to drive the machines, and hence, when the prices of fuel raise, the price of fertilizers increase too so as to cover the increased costs incurred. Natural gas, which is a raw material for the production of fertilizer, also has the same supply problems as petroleum, and thus, its price migration is similar to that of oil (Vadim 58). A report in 2008 pointed out that the food crisis, experienced globally in 2008, was similar to that experienced earlier in 1972 since in both cases, the prices of fuel was the driving factor. The other factors included low interest rates, reduction in the value of the dollar, a decline in the global stocks, and bad weather conditions not suiting grain production. The other contributing factor to the increasing food prices is the reduction of food stocks in most countries in the world. Due to the convenience in importation of food products from other countries and faster growth of food crops, many countries have neglected the old fashioned huge stocks of grain, kept by the state, to act as a buffer.

In January 2008, the wheat stockpiles hit a record low for the last 60 years in the US and so was the case in many other countries. This, thus, led to a high demand of food commodities all at once from several countries due to lack of stock to act as a buffer, hence, the prices of food sky-rocketed (Brown 52). Financial speculation also played a big role in the exponential increase in the food prices. It had destabilizing influences on other fields like real estate and banking, and thus, people ignored investment on food commodities, leading to reduced production. Speculations on the commodity futures due to the fall in the financial derivatives markets led to the food crisis due to the effects of commodities super-cycle.

Financial speculators who are interested in obtaining quick returns on their investments pulled out trillions of money from mortgages and equities, which had been invested in food production and other raw materials, used in the processing of food. This, thus, had a worldwide effect on food prices since the money withdrawn drove productivity improvements and other gains expected by the farmers (Chakrabortty 42).The market of food product has also grown very thin, meaning that the share of imports and exports of food commodities is very low as compared to its consumption or production. When this happens, the local prices of food stuffs are not aligned to those of the global markets due to policies placed by various state legislations and market imperfections. Therefore, the global market usually has to accommodate this by large variations in prices due to external shocks to quantities of goods traded, considering all other factors kept constant. This effect is often viewed as relatively permanent and leads to the volatility in the market prices.

The other factor is the varied nature and composition of demand for commodities initially perceived as food crops. There has been increased demand for grains and oilseeds for industrial purposes, which add more strain to the already overstretched supply of such products. The demand for the bio-fuels is, however, less responsive to price changes as compared to the demand for food, considering food is a basic necessity (Al Jazeera 2008). The productivity of soils has gradually reduced over time and has led to large farmlands yielding so little as the years pass. This is due to the effects of soil erosion, urbanization and water depletion.

This has led to huge tracts of land turning into wastelands due to degradation, and thus, adding to the reduction in supply of crops. In Northern China, there has been marked depletion of non-renewable aquifers, which has led to reduced crop production from this region. Environmental factors are also probably having a hand in the reduced food supply with the rising in volume of troposphere ozone at the ground level. Crops often are very sensitive to ozone gas and the exposure of the grain crops to this gas certainly leads to reduced yields. It is, therefore, most likely that the reduced yield of wheat and corn is due to increases in levels of ozone in the lower atmosphere. High concentration of ozone gas has been studied to affect the oilseed rape, which is the major source of oil that is used in China.

The study showed that the plants that were grown under special conditions with higher ozone levels had remarkably reduced size and weight by about 10-20%. Idling of farmlands also led to lower food production, and hence, translating to lower supply of grains. As noted by the New York Times, under the conservation program, whereby the state pays farmers for not using their farms for crop production, the total area of land left idle by the end of 2007 was about 149,000 km2. This represented almost 8% of all the croplands in the whole of US, and hence, it is almost accurate to conclude that the production of food was reduced by 8% due to the idling the farmlands (Brown 52). Thus, it is evident that the rapid increase in food prices was as a result of a collection of factors acting together pushing the prices upwards. These factors took some time to reach this critical point of inflicting such a major damage to humanity and if something was done beforehand, the sufferings could have been alleviated.

So one would ordinarily ask, ‘What could we have done so as to prevent the global food crisis that we are facing currently?’ Or better still, one would wish to prevent any future similar occurrence, and thus, would wish to know what to do. With the high food prices and horrible weather conditions in some regions, very few people are in a position to access food. There is, thus, an urgent need for humanitarian services so as to help those, who are in need of food and cannot afford to obtain it. The number of people requiring food aid has been in the increase of late due to the increased food prices and this has overstretched the ability of the aid organizations to efficiently offer the much needed help. The purchasing power of the poor should also be increased so that they are able to purchase food, even if the prices are high. This calls for foster growth and encouraging development in the poor nations.

The countries should also invest in agriculture, carry out research on better animal and crop husbandry, offer extension and education to the farmers so as to reduce poverty and increase the growth rate of the economy. The economy of developing countries should be diversified so that if a given sector is affected, food can still be made available to the citizens through another sector of the economy (Chakrabortty 42).The governance of such countries should also be made more efficient so that they are able to make wise decisions that can help in developing such countries. The government can also create conducive environment for the farmers to produce enough food for the country. This can be done through better microeconomic policies enactment, development of infrastructure, use of current technology, offering relevant education and health services. The capacity of individual countries should be dwelt upon so as to empower the people to develop the economy uniformly and not concentrating only on some few aspects (Al Jazeera 2008).

The agricultural trade policies should be reformed so as to eliminate the limiting factors that often distort the market and raise global prices. The policies that restrict trade such as those imposed on imports and exports often have undesired impacts, which were not intended, and thus, should be lifted. Subsidies also prevent the market from adjusting with changes in demand and supply, and therefore, end up distorting the market and often not helpful in the long run. Ideally, export taxes and embargoes have the effect of imposing burden on the local producers and reduce their response to supply deficit. In the short run, these taxes seem to provide relief to the consumers but in actual sense, they do not provide any distinction between high and low income earners and, therefore, do not accomplish the purpose it was meant to.

The export restrictions often lead to uncertainties in the global market and, thus, allow the speculators a chance to drive the commodity prices higher. The increase in food prices generally affected most sectors in the economy, considering the fact that food is a necessity. This pinch has, thus, been felt by almost everybody on the planet; some had to make a choice between life and death, while others just had to spend a small additional amount of money on their daily expenditure. The increase meant that the cost of life increased in general and the low income earners were the ones who felt it the most. Many lives were lost in several parts of the world due to lack of food, while others endured very tough time with very little to feed on (Chakrabortty 42). In conclusion, the hike in food prices is a global concern; its impacts are felt all over the globe and should, thus, be approached from an international perspective.

The prices of food in the international markets have to be reduced if the poor are also to survive. Too much speculation and policies that are selfish lead to volatility of the market and general unrest and, therefore, should be removed if food prices have to be stable. Food crops must also be produced in sufficient quantities and stored to act as a buffer stock. This would, thus, help prevent any future food crisis giving life a meaning.