“What Do Rising Food Prices Mean?”

Posted by Robert D. Hormats / February 23, 2011

About the Author: Robert D. Hormats serves as Under Secretary of State for Economic, Energy and Agricultural Affairs.

The United Nation's Food and Agricultural Organization released figures this month showing that global food prices have risen 41 percent since June, primarily due to a combination of bad weather and an increase in global demand. The report has raised concerns about the possibility of a global food crisis, as occurred in 2007-2008. In response to that crisis, the international community, led by the G-8, committed to increase focus on food security and reverse the decade-long decline in assistance for agricultural development. That was the right solution then, and it remains the right solution now. The United States is a proud partner in this effort and is committed to supporting developing countries' efforts through our $3.5 billion Feed the Future initiative.

Global food security is a top priority for the United States. We are deeply concerned about the pressure that rising prices put on the ability of the poor to purchase food. We are closely watching food prices and their impact on the poor, we are coordinating closely with other governments and international organizations, and we are taking steps to achieve long-term sustainable solutions to food insecurity.

First, it is important to recognize that there are important differences between the current situation and 2007-2008. World food prices have been increasing over the past six months, due to weather-related production losses and strong global demand. The growing demand is fueled by rapid expansion of middle-class households in emerging markets. Despite localized weather-related impacts, the supply side story is not dire: global wheat production is the third largest on record and carry-in stocks are 50 percent higher than in 2007-08. Good harvests of staples in Africa and Latin America have kept local prices of these products low. Record world rice production and the largest carry-in stocks in eight years have resulted in only moderate changes in rice prices. And finally, delivering these record harvests is affordable: ocean freight rates are less than half of the levels seen three years ago.

We learned a lot from the food crisis of three years ago, including the policies it takes to ensure food supplies without making the situation worse. We are working bilaterally and through multilateral institutions, such as the UN food agencies, the G-20, and APEC, to encourage all nations to pursue policies that facilitate agricultural growth and reliable trade flows. It is vital that we all maintain transparent, functioning markets and avoid export barriers, panic purchases, and inordinate increases in stocks, moves which will drive prices higher rather than temper them. Governments understandably want to ensure affordable food supplies for their people. They can best do this by putting in place targeted safety nets for the most vulnerable, and consider reducing import tariffs and taxes.

The long-run answer to meeting increasing global demand for food is agricultural growth, increased productivity, and improved markets, and this requires conditions that encourage investment in agriculture, particularly in the developing world. Many technologies, such as biotechnology, conservation tillage, fortification, drip irrigation, integrated pest management, and new multiple cropping practices, are raising the efficiency and productivity of agricultural resources, as well as the quality of agricultural outputs. By investing in agriculture using these technologies wisely, nations can reduce poverty and increase consumers' access to nutritious and diverse foods. This is precisely the goal of Feed the Future -- to support countries' aspirations for inclusive economic growth, resilience to crisis, and ultimately food security.

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