Trends, drivers and impact of high food commodity prices.

Abstract

Abstract Price hikes are frequent in agricultural commodity prices, though a spike such as the 2007/2008 one had not been seen for 34 years. The causes are various in nature. There is a strong increase in the demand for industrial use and for feed use, owing to biofuel expansion and to changing diet habits in emerging countries, respectively. On the supply side, there has been a low supply response because of adverse weather conditions in some important exporting countries. As a consequence of the tight demand/supply situation, stocks are decreasing dramatically. The problem of high prices of basic food commodities exposes governments and societies to a great challenge that can only be addressed by means of a comprehensive food policy for the coming years. The challenge is to address the adverse impact of high food prices in the short run without compromising the long-run equilibrium of agricultural markets. High food prices in the short-run are very damaging for low-income groups of the population in developing countries. At the same time, high prices are an incentive for producers and extremely important for generating an aggregate supply response and to re-establish a long-run equilibrium. Agriculture is a sector where markets are far from perfect and require the presence of functioning institutions and public goods, which are lacking in most of the developing countries. There is the need to ' get institutions right ' and to undertake investments in the provision of public goods together with the right price signals. Only by putting in place these complementary policies can a situation of high prices can become an opportunity.