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The Causes of the Global Food Crisis

The global food crisis is currently concentrated primarily in urban areas, where people must buy all of their food and are at the mercy of volatile markets. However, people in rural areas who cannot produce enough to feed their families are also suffering.

The sharp price increases are beginning to cause widespread hunger as many families are using as much as 75 percent of their income for food. The crisis is triggering riots in cities in several nations. High food prices have brought down governments in the past, and could do so again in this crisis.

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There are several factors driving the sharp increase in global food prices:

  • Increased demand for food generally. While production around the world has been increasing, consumption for food, feedstock, biofuels and other commercial uses has been growing at an even faster rate.
  • Increased demand for animal protein. More affluent societies use large amounts of grain for conversion into dairy, eggs and meat. Conversion uses far more grain than if people simply ate the grain themselves. There have been tremendous increases in China and India, but also in other countries where standards of living are rising.
  • Increased fuel prices. This leads to higher transport costs, higher costs of agricultural inputs, such as fertilizer and pesticides, and higher costs of production for commercially produced crops.
  • Drought in major producing areas. Drought is affecting Australia, the Balkans and the former Soviet Union. Other factors such as mold are affecting grain production in South Asia.
  • Food reserves are down globally. The U.S. Department of Agriculture has reported that global grain reserves are at their lowest level since 1960. Global stocks of wheat, coarse grains—corn, barley, sorghum, millet and oats—and rice have decreased every year since 2001/2002, with the exception of 2004/2005. In effect, we have been living off our savings.
  • Increase of grain and oilseed crops diverted for biofuel production: The use of corn for biofuel affects the price of wheat and rice. The use of palm oil for biofuel affects the price of soybean and other vegetable oils. According to the International Grains Council, biofuel may account for as much as 6.5 percent of the consumption of the worldwide 2007-2008 crop. As much as 28 percent of the U.S. corn crop is going into ethanol production, with plans to increase this amount.
  • More floods, droughts, natural disasters globally in 2008 whereas the last two years were relatively disaster-free.
  • Export bans and government price controls are having exacerbating effects on market prices elsewhere.
  • Finally, it should be noted that there have been many years of under-investment in agricultural productivity, particularly in developing countries. While the food crisis seems to have appeared suddenly, this lack of investment in agriculture, market infrastructure and related areas has combined with the above factors, many of them policy decisions by our government and others, to create the current situation.

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