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High Food Prices Expected to Climb Further

UN world food price index hit a high in January

One of the key factors pushing up food prices is the growing use of food crops to produce fuel.
One of the key factors pushing up food prices is the growing use of food crops to produce fuel.

World food prices remain near record-high levels, according to the latest UN world food price index, and they're expected to climb even higher.

The index hit a record in January and has not come down much since.

Today's high prices come less than three years after the index hit its previous peak in 2008.

"I'm not surprised at all," says Shenggen Fan, head of the International Food Policy Research Institute. "The factors that pushed food prices higher remain the same."

Food for fuel

He says one of the biggest factors pushing up food prices is the growing use of food crops to produce fuel.

In just the last few years, ethanol production from maize has skyrocketed in the U.S. In Brazil, it's sugar cane. And in Europe, fields of canola are sprouting up to produce biodiesel.

That means food and energy prices are more closely linked today than they were before the biofuels boom, says Iowa State University economist Dermot Hayes.

But that's just one way food and fuel prices are connected, he adds, "the second one being the increase in transportation costs."

Transporting food from field to fork costs more when fuel prices are high. And it also costs more to run the trucks, tractors and machinery to produce it.

The cost of prosperity

Meanwhile, the demand for food is growing where prosperity is increasing and diets are changing, especially in emerging economies such as China, India and Brazil.

"They deserve a good life. So they want to eat more meat, more diversified food," Fan says. "And that all demands more feed, more grains."

Fan notes that it takes several kilograms of grain to produce each kilogram of meat.

The tremendous global growth in the demand for grains means farmers in the major producing countries need to produce ever-larger harvests.

Bad weather

But last year the weather did not cooperate.

"The midwestern part of the U.S. had too much rain," Hayes says, "and just about everywhere else in the world had too little rain. In particular, Eastern Europe had too little rain. It caused both Russia and Ukraine to literally cut off exports of wheat."

Russia and Ukraine's export ban started prices climbing last July.

Eastern Europe is doing better this year, but the midwestern U.S. is not, Hayes says.

"We're really dry right now, so it's the opposite of last year," he says. "But I personally am getting more and more concerned about the size of the U.S. crop, both for corn and soybeans. So, potentially, things could evolve next year as they did last year and we could see higher prices next year as well."

Hayes says high prices are actually good news for farmers. They will encourage farmers around the world to produce more.

The question is whether they will produce enough to keep up with the ever-growing demand, and if weather extremes brought on by climate change will make it harder for them to do so.

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