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Food Prices: Why So High?

Latest spike is a variation on the pattern set in 2002

A steady downward trend in global food prices in 1980-2002 has given way to sharp rises and falls.

A report from the US Department of Agriculture Economic Research Service (ERS) looks for answers to the question Why Have Food Commodity Prices Risen Again?

The short answer: For the same reasons that prices rose in 2002-06 and 2007-08.

Long term trends driving up food prices include global growth in population, per capita incomes (which boosts consumption of meat), and biofuel production coupled with declines in the US dollar and agricultural productivity. Shorter term forces are also at work: Mother Nature and government trade policies.

While the causative factors are the same, the ERS researchers write, the timing, sequence, and relative importance of these factors varied.

There are other variations within the data.

Since 2002, the four basic crops – wheat, rice, corn, and soybeans – have had bigger price swings than all food commodities as a whole. In the period between June 2010 and March 2011, the four-crop index rose 70%, compared with 39% for the food commodity index compiled by the International Monetary Fund. However, rice prices are half off their 2008 peak and have barely budged since June 2010.

When prices for farm products rise, farmers plant more, and prices decline – and so the USDA projects near term declines in prices for major crops. Longer term, keep a weather eye on national trade policies, the US dollar, and energy prices.

Date posted: September 1, 2011

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