Food Price Surges: Possible Causes, Past Experience, and Longer Term Relevance

The food price surges of recent years have created much misery and raised once again the Malthusian specter. Increases in the demand for food in the emerging economies, particularly China and India, have frequently been identified as the dominant factor behind a perceived shock on the demand side. Use of crops for biofuels was listed as an additional, though less important, factor. Yet global cereals utilization without biofuels has been growing at slowly decelerating rates, as in the past. It is the addition of biofuels that has resulted in its growing faster than in the past. In parallel, global production had been falling behind utilization for several years, leading to declining stocks. Weather shocks, depreciation of the dollar, and turbulence in the financial markets were added to these fundamentals of the supply-demand balance to generate the price surges. If energy prices remain high and/or rising and pro-biofuel policies remain in place, the diversion of crops to biofuels is likely to continue. This could prevent the current commodity cycle from unfolding in the "normal" way over the short to medium term with prices trending back toward their pre-surge levels. Conclusions are drawn about how these developments should influence the way we assess long-term food and agriculture prospects.