World Food System Disruptions in the Early 2000s: Causes, Impacts, and Cures

Published date01 March 2014
Date01 March 2014
World Food Policy
The spikes in food prices over the last
six years and their extreme volatility,
i.e., unpredictable and large swings in
prices, are an expression of changes in glob-
al markets and a signal of resource scarcity.
Briey interrupted only in the mid-1970s,
international real food prices recorded a de-
clining trend that lasted for decades. Prices
then stabilized around a slightly increasing
trend for ve to six years until mid-2007,
when they started a sharp rise, reaching a
twin peak rst in June/July 2008 and then
in December 2010/January 2011. Since
then, international real prices have been
volatile, with several peaks and troughs.
e breaking of the long-term price
decline experienced since 2008 and the ex-
treme volatility of food prices present ma-
jor challenges for the world’s policymakers,
who are increasingly faced with rising food
insecurity, combined with political and eco-
nomic risks, like social unrests, and acceler-
ated ination. Lack of predictability and un-
certainty associated with increased volatility
hampers economic growth in poor countries
(Jacks, O'Rourke, and Williamson 2011),
undermines progress in nutritional status
and peoples’ food security (FAO 2011), and
amplies the incidence of poverty, when the
real income of the poor declines (Benson
et al. 2013; Ivanic and Martin 2008). Fur-
thermore, price volatility may complicate
environmental management for commodi-
ty-dependent countries and nancial plan-
ning, since companies tend to postpone
investment expenditures when they expe-
rience increased uncertainty concerning
future commodity prices (Ferderer 1997).
e rapidly rising and more-volatile food prices of recent years are a signicant in-
dication of changes in global markets and a signal of resource scarcity. ey pose
new challenges in terms of food and nutrition security at the worldwide level. is
article traces the main drivers and impacts of food price increases, and propos-
es institutional changes in the world food system to help overcome chronic sup-
ply constraints through enhanced productivity, combined with actions to address
new causes of food price volatility, such as nancialization of commodity markets
and linkages to energy markets. e price crises of 2008 and 2011, and to a less-
er extent in 2012, have been met with oen, uncoordinated national policy adjust-
ments with international implications. To prevent such collective actions failures in
the international food system, comprehensive institutional changes are proposed.
Keywords: price volatility, price crises, food security, governance
JEL Classication: F55, O19, Q02, Q18
World Food System Disruptions in the Early 2000s:
Causes, Impacts, and Cures
Joachim von Braun1 , Bernardina Algieri2 , Matthias Kalkuhl3
1 Corresponding author, Professor for Economic and Technological Change, Director, Center for Develop-
ment Research, University of Bonn, Germany.
2 Lecturer, University of Calabria, Italy.
3 Senior Researcher, Center for Development Research, University of Bonn, Germany.
World Food System Disruptions in the Early 2000s: Causes, Impacts, and Cures
In this context, the present study
aims to examine in greater detail the caus-
es of sustained increases in agricultural
prices and price volatility in order to as-
sess the emerging risks for developing
countries and to propose a set of institu-
tional changes in the world food system to
overcome the risks of extreme booms and
busts in food prices. It outlines potential
approaches for coping with chronic supply
constraints through enhanced productiv-
ity and suggests actions connected to the
new drivers of food crises, linked to nan-
cial markets, energy, water, and climate
change. Eective remedies will require a
combination of new public-policy actions
that foster agricultural growth and protect
the vulnerable. Finally, the paper reviews
several promising international initiatives
carried out recently by the private sector to
stabilize prices. e remainder of the paper
is organized as follows: the second section
investigates the main determinants of high
and volatile food prices, and groups them
into three main categories: fundamentals,
macro-factors, and new drivers; the third
section analyses the core consequences
brought about by high prices and volatility;
and the fourth section presents a set of pol-
icy actions to be pursued in order to curb
extreme price rises and volatility, and mit-
igate the negative eects on the most vul-
An overview of the main causes of
price hikes and volatility
Aer remaining at historically low
levels for decades, food prices
started rising and becoming more
volatile in the mid-2000s. In 2007–2008,
the price of almost every food item sharp-
ly increased. At their peaks in the second
quarter of 2008, world prices of wheat and
maize were three times higher than at the
beginning of 2003, and the price of rice was
ve times higher (Figure 1). Prices dropped
thereaer, mainly b ecause food demand
slowed with the global nancial crisis and
recession; they spiked again in 2011 and in
the third quarter of 2012.
At a more aggregated level and in
real terms, the Food and Agriculture Orga-
nization’s (FAO) food-price index, tracking
important international food commodity
prices, as well as the FAO’s cereals price
index which includes grains and rice repli-
cate the price movements of the four staple
crops (Figure 2). Although the FAO indi-
ces use weights based on export volumes
which do not mirror the diet composition
of the poor in developing countries, they
give a rst proxy of the magnitude of food
price changes.
e fact that agricultural commod-
ities, especially cereals, experienced three
signicant price spikes in about six years
suggests that something serious is shaking
the world’s food chain. Determinants of
high prices and volatility are complex and
numerous, and they include traditional
agricultural fundamentals as well as mac-
ro-economic factors. Additionally, they in-
volve new determinants linked to energy
and worldwide nancial markets. Figure 3
provides a synthesis of the dierent drivers
which will be discussed in more detail be-
Market fundamentals that led to
price increases operate via demand and
supply channels, and include greater costs
of production due to higher energ y and fer-
tilizer prices, high demand coming mainly
from emerging markets, primarily China
and India, and general uctuations in har-
vests (Abbott, Hurt, and Tyner 2008; 2011;
Trostle 2008). e inelastic nature of food
demand and supply exacerbates shocks as
production can only respond slowly to in-

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