What Became of the Food Price Crisis in 2008?

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What Became of the Food Price Crisis in 2008?

1 Introduction1

Between 2006 and mid-2008 world market prices of cereals, oil seeds, and dairy products more than doubled. The United Nations Food and Agricultural Organisation (FAO) estimated that the number of hungry people increased from 848 million people in 2003-05 by 75 million to about 923 million at the end of 2007 (FAO 2008a).2 Moreover, the International Food Policy Research Institute (IFPRI) registered social unrest due to high food prices in more than 60 developing countries (von Braun 2008, p. 6). Governments and aid organisations around the world called for immediate action. Then, in the second half of 2008 prices of cereals fell sharply by about 40%, and prices of oil seeds and dairy products dropped to their levels of early 2006. The price development of food commodities in 2009 was nonuniform. In June of that year FAO raised again the alarm with the estimate that more than one billion people go hungry every day, some 100 million more than one year earlier (FAO 2009a).3 This development was not only grim news, but also raised puzzling questions. How come that hunger got more severe despite declining prices? Must we expect another price hike in the near future? Why did prices rise so high in the first place? What are the consequences of higher food prices on the poor? What can be done to reverse the trend of more people going hungry? These are the questions addressed in the following discussion.

The paper is structured as follows. Section 2 illustrates global and regional developments of production, utilisation, and prices of cereals, the most important staple food. Section 3 analyses the major driving forces of these developments. Section 4 takes a look at the impact of speculative investors on food commodity prices. Section 5 discusses the impact of high food prices on the poor. Section 6 concludes and explains with econometric estimates that interventions in the agricultural sector alone will not suffice to reduce hunger.

2 Global production, utilisation, and prices of cereals

Global cereal production and consumption during the past forty years was characterised by a steady growth...

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