High Food Prices and Developing Countries: Policy Responses at Home and Abroad

Abstract

The last three years have been a roller-coaster ride for food prices. After trending down in real terms since the 1970s, cereal and grain prices have experienced among the largest percentage price changes over the past 60 years (Sumner 2009). This episode serves as an important reminder that food prices can be highly variable within short periods of time; a lesson that many may have forgotten since the last such event in the 1972-74 period. Cereal food prices rose dramatically during the 2006-2008 period, more than tripling in some cases. Now, after a sharp fall from May to December 2008, those prices have risen again and remain one-third to one-half above long-term trends. This situation is costly for all consumers, both for the higher cost of food and for the variability in its price. High food prices will have negative impacts on poor families and more broadly on consumers in developing countries. These events raise two important questions: 1) what caused recent price increases, and 2) what can countries do to reduce these negative impacts, both independently (though domestic trade and support policies) and multilaterally (through organisations such as the World Trade Organisation and World Food Programme). Within Canada, it raises the question of what the Government of Canada can and should be doing to deal with this price variability, especially in its aid policies toward developing countries. Should it be increasing food aid shipments, and should it be channelling its food aid differently? Or should it be helping developing countries modify their policies to limit negative impacts of high food prices? This paper reviews the recent price spike in an effort to understand its background and its effects on developing countries. We discuss the responses that can be taken within those countries and by Canada to minimize the damage that higher food prices and food-price instability can cause to poor countries and poor people. We conclude with a set of policy recommendations.