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Tuesday, March 4, 2008

Rising Food Prices Fuel Discontent in Poor Countries

In Mexico City, mass protests about the cost of tortillas. In West Bengal, disputes over food-rationing. In Senegal, Mauritania, and other parts of Africa, riots over grain prices. And in Yemen, children march in public to call attention to child hunger.

This chain of events is in stark contrast to the falling food prices that consumers have come to expect over the past several decades.

On February 13, the FAO announced that 36 countries are in crisis as a result of higher food prices and will require external assistance. In many of these countries, food insecurity has been worsened by conflict, floods, or extreme weather.

Last month, in Davos and in Addis Ababa, World Bank President Robert Zoellick called for action to tackle hunger and malnutrition in a world of rising food prices. "Hunger and malnutrition are the forgotten Millennium Development Goal. It has gotten less attention, but increased food prices and their threat – not only to people but also to political stability – have made it a matter of urgency to draw the attention it needs,” he said.

While headline news about high food prices is a relatively recent phenomenon, the broader upswing in commodity prices began in 2001. Large structural shifts in the global economy—including growing demand in China and India—have been steadily reflected in commodity price increases, especially of metals and energy.

Food prices have increased in response to many factors: higher energy and fertilizer prices; increased demand for biofuels, especially in the U.S. and the European Union; and droughts in Australia and other countries. World grain stocks are at record lows and next year’s prices depend on the success of the next harvest in the northern hemisphere.

Wheat prices (US$) have increased by 200 percent, and overall food prices (US$) have risen by 75 percent since the turn of the century. Adjusting for exchange rates and domestic inflation reduces the price increases faced by developing countries—but these increases are still severe for millions of poor consumers.

“The increases in grain prices are not caused by short-term supply disruptions, as is the normal case, and it will likely take several years for supplies to increase to rebuild stocks and allow prices to fall,” said Don Mitchell, Lead Economist in the World Bank's Development Prospects Group.

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