Development Economics

A Review – Food Price Increases: Causes, Impacts and Responses – Part IV: Food Price Spikes

Food Price Spikes

Food price spikes are not unprecedented. Indeed, there have been larger ones previously, particularly in the 1970s. But food price spikes have returned with a vengeance in this century.

Joahcim Von Braun, Professor at the University of Bonn and former Director General of International Food Policy Research Institute, set the stage a few days before the main conference at a policy forum. Speaking of the big spike in 2007-08, Von Braun said that “changes in supply and demand fundamentals cannot fully explain the recent drastic increase in food prices.” Instead he said the new spikes are driven by three new factors:

Energy market linkages – high prices of oil are not just raising the costs of fertilizer but also incentivizing farmers in rich countries to use their crops for biofuel. Financial market linkages – there is a clear and growing link between food market volatility and financial crises.

Financial market linkages – there is a clear and growing link between food market volatility and financial crisis.

Speculation linkages – the “speculation effect partly depends on the ‘nervousness’ of the market,” as von Braun explained; “What is called speculation actually stabilizes prices when the market is less nervous,” because it can push markets to find prices consistent with supply and demand more quickly. But speculation is destabilizing “when the market becomes nervous as a result of changes in fundamentals, policies and structures.” Shifts in sentiment can result in spikes.

Presentations of other speakers echoed problems of energy market linkages, making it one of the strong consensuses of the conference. Professor de Janvry noted the “intrusion of energy demand in food markets” would have to be confronted. Dr. Torero proposed policies and technology investments to “minimize food-fuel competition.”

About

Stephen C. Smith is a Professor of Economics and International Affairs and Chair of the Department of Economics at the George Washington University. He received his PhD in economics from Cornell University and has been a Fulbright Research Scholar, a Jean Monnet Research Fellow, a Brookings Visiting and Non-Resident Fellow, as well as an IZA Research Fellow. Professor Smith is the author of Ending Global Poverty: A Guide to What Works (Palgrave Macmillan, 2005); co-author with Michael Todaro of Economic Development (12th Ed., Addison-Wesley, 2014); and co-editor with Jennifer Brinkerhoff and Hildy Teegen of NGOs and the Millennium Development Goals (Palgrave Macmillan, June 2007). He is also author or coauthor of approximately fifty journal articles, and numerous other publications. (Further details at https://www.gwu.edu/~iiep/ssmith/).

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