World Food Prices: Causes and Consequences

Alex F. McCalla

Professor Emeritus, Department of Agricultural and Resource Economics, University of California, Davis, 1 Shields Avenue, Davis, California, USA 95616 (phone: 530-752-1529; fax 530-752-5614; e-mail: alex@primal.ucdavis.edu)

INTRODUCTION

It is a great honor to be invited to give the CAES Fellow’s Address in my home country, to give it on the 400th Anniversary of the founding of Quebec and to do it in Quebec City. The topic given me is current, topical and emotional. Food prices are always controversial, either too high for consumers or too low for farmers and often unstable. The paper is divided into four parts: the first places the current situation in historical context; the second identifies some competing explanations for high food prices; the third analyzes in more detail the Structural Change/Shock story; and the fourth notes the consequences, especially for Developing Countries. The paper closes with the big question - When the bubble breaks, will long run real prices be on a higher level with a stable or increasing trend or will we back to “Business as Usual” with real prices dropping down to the previous level and continuing their 150 year downward trend?

THE CURRENT SITUATION IN HISTORICAL CONTEXT

FAO’s price index of all foods in dollar terms has more than doubled since last three years of the 20th century, and the real food price index has increased by over sixty percent (Figure 1.). Between the beginning of 2007 and mid-year 2008, rice prices tripled, wheat prices more than doubled and maize prices doubled (Stoeckel, 2008).(See figure 2) Prices for individual commodities such as milk, maize and oilseeds have also increased. The Wall Street Journal (June 10, 2008) reports that the cereal import bill of 82 low income countries has doubled since 2006.

Figure 1: Extended Annual