What went wrong with food prices?

The following material is from: 1) ADB report on food prices, 2) NBP Economic Bulletin.

What went wrong with food prices?

Four pronged reasoning:

1) Distinction between structural and cyclical factors:

Structural factors include: Demand side factors (growing population, growth in emerging markets particularly India), increased expenditure required on energy (eating away the budget share for food), falling stock of rice and other cereals becasue production has fallen below consumption for several years, bio-fuel demand increasing.

Cyclical factors include: Adverse weather, Drought in Australia and Central Europe, Flooding in South Asia.

2) Distinction between Supply and Demand:

Urbanisation and competing demand for land for commercial use, scarcity of water for agricultural purpose, neglect of inveatment in agricultural technology, infrastructure and extention programmes, pricing policies discouraging the farmers.

3) Relationship between International and Domestic Markets:

Governments restricting food exports and also giving price subsidies, food based safety net programmes contributing to budgetary costs.

4) Other factors:

Increased demand for food in Asian countries, increased use of grain especially corns to produce bio-fuels, commodities have attracted investors/speculators looking for a safe haven, higher oil prices leading to higher costs of transportation.