BBC News
By Mark Gregory – International business reporter, BBC World Service
July 13, 2009

http://news.bbc.co.uk

Food prices soared in 2007 and early 2008, throwing hundreds of millions of people around the world into poverty.

Rioting took place in Egypt, India, Indonesia and other countries over the rising cost of rice and wheat.

Since last year’s peak, trends in global food price have been more complex.

But despite this, the BBC’s own research suggests rising food costs remain a major problem for lots of people in lots of places.

In 2007 and early 2008, various factors were at work. There were poor harvests in grain producing countries. Rising oil prices led to increased transport and production costs.

At the same time, an increased use of biofuels meant less land was available for growing food.

Finally, there were increases in food demand in some emerging economies, notably China, coupled with changes in diets – meat uses more resources to produce than grain.

As a measure of the scale of these cost increases, the United Nations’ Food and Agriculture Organisation (FAO) food price index rose 82% over two years, reaching its highest level in June 2008.

This index measures the movement of wholesale prices of five basic food categories: meat, dairy, cereals, sugar and oils & fats.

What’s happened since

Since last year’s peak, some of the factors that caused food prices to shoot up so rapidly have gone into reverse.

Poor harvests have given way to bumper crops. For example, the 2008 global wheat harvest was the best on record.

This year’s wheat harvest is likely to be the second best yet, despite crop failures in Argentina.

Recession in many countries has taken the pressure off demand for food products.

Oil prices have also dropped, lowering food transport and production

Concerns remain

Despite these trends, the BBC’s own research suggests rising food costs remain an issue for many people.

For the last 12 months the BBC Food Price Index has been tracking what shoppers pay for some basic foods in seven cities: Washington DC, Delhi, Jakarta, Brussels, Buenos Ares, Nairobi and Moscow.

Overall, prices have risen by a bit less than 5% over the period of the survey.

But there are some remarkable differences between cities.

In Nairobi, our index suggests food prices rose by nearly a third. In Buenos Aires, the increase was almost a fifth. Both these cities are in the developing world.

However, in the two wealthiest cities, Washington and Brussels, the cost of staple products actually fell sharply – by 17% in the US capital and by 10% in Europe’s hub.

Our survey is not comprehensive, but it may illustrate underlying trends.

Price puzzle

Other data suggests global food prices fell very sharply towards the end last year as many economies went into recession, but have since begun to climb again, although not to last year’s levels.

In May 2009, the FAO’s food price index was 29% below its peak in June 2008. However, the May figure was nearly 10% above the very lowest point reached in February 2009.

The FAO points out that although international food prices have come down from record highs in 2008, they have yet to drop to their levels before the food crisis, and the risk of price volatility remains.

The organisation says the cost of basic staple foods in developing nations remain "stubbornly high" by past standards.

Another important point is that the current economic slowdown has cut many people’s purchasing power – they’ve lost their jobs or seen their incomes cut.

This means they may find it just as difficult to pay for food as they did last year when food prices were higher.

It is something of a puzzle to explain why food prices have started to rise again.

Many economies are in recession, which should mean less demand for food, and global crop yields are generally high.

Some commentators say the fact that food prices remain relatively high in these circumstances suggests there has been a structural shift in the balance of supply and demand for food.

It may be that long term factors such as population growth and increased meat consumption among the new middle class in emerging economies mean food prices will remain permanently higher than before the crisis of 2007/08.

http://news.bbc.co.uk/2/hi/business/8144008.stm