Global Issues
WHAT TO DO ABOUT FOOD PRICES
The world is living through another major upswing in food prices. World food prices surged to a new historic peak in January, for the seventh consecutive month, as the FAO Food Price Index reached 231 points, up 3.4 percent from December 2010. The accumulated increase in food prices during 2010 amounted to 25% relative to the 2009 level, writes José Graziano da Silva, Regional Representative for Latin America and the Caribbean of the Food and Agriculture Organization (FAO) of the United Nations and Ekaterina Krivonos, Trade and Market Officer at FAO’s Regional Office for Latin America and the Caribbean.
Price movements are no longer determined only by the basic driving forces of supply and demand: agricultural commodities are attracting excess liquidity in international markets and other factors, far less transparent and constantly changing, such as expectations and appetite for risk, start to play an important role in determining the direction of the prices.
Furthermore, food markets are more and more intertwined with financial and energy markets, both of which are characterized by greater volatility. Facing these multiple sources of uncertainty, agricultural commodity markets tend to overreact to any changes in the demand or supply projections, as it happened in mid-2010 in the case of wheat.
Although the world produces enough food, global production needs to be gradually increased to keep pace with the growing population. Chronic underinvestment in agriculture throughout the years, in developing countries in particular, made them more vulnerable to risks associated with the new dynamics that rule the world market. Investment in agriculture, which would allow to increase productivity and improve resilience to climatic risks, together with strengthening of rural institutions and better governance of commodity markets, are needed to reduce the incidence of price spikes.
(*) José Graziano da Silva is the Regional Representative for Latin America and the Caribbean of the Food and Agriculture Organization (FAO) of the United Nations. Ekaterina Krivonos is Trade and Market Officer at FAO’s Regional Office for Latin America and the Caribbean.
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© Inter Press Service (2011) — All Rights Reserved. Original source: Inter Press Service