Why Food Price Volatility Doesn't Matter

Policymakers Should Focus on Bringing Costs Down

Courtesy Reuters

At the end of 2010 and beginning of 2011, world food prices rose sharply, hitting an all-time high in February 2011. The spike arose from an unlucky combination of increased consumer demand due to rapid economic growth in emerging markets in Asia; the diversion of food crops toward biofuel production in the United States and elsewhere; poor harvests due to bad weather in key grain exporting zones such as Australia, Russia, and South America; and increased speculation in agricultural commodity markets, as investors fled a weak dollar.

The sudden uptick in prices rightly concerned global leaders. In February, World Bank President Robert Zoellick correctly warned that “global food prices are now at dangerous levels” and that “recent rises in food prices are causing pain and suffering for poor people around the globe.” He went on to worry about “rising and volatile food prices.” Other world leaders’ remarks are similar: French President Nicolas Sarkozy said that, under his leadership, the G-8’s and G-20’s priority would be to push for policies aimed at curbing food price volatility, cautioning that “if we don't do anything, we run the risk of food riots in the poorest countries.” Likewise, in March, the Brookings Institution published an opinion piece by Homi Kharas stating that “the crux of the food price challenge is about price volatility rather than high prices per se” and that it is “the rapid and unpredictable changes in food prices that wreak havoc on markets, politics and social stability.” In late June, the G-20 released a ministerial declaration calling on members to end food price volatility.

It is well known that high food prices hurt consumers, especially the poorest, who routinely spend half or more of their meager incomes on food. The World Bank estimates that recent price spikes for foodstuffs have pushed an additional 44 million people into extreme poverty. The UN Food and Agriculture Organization (FAO) estimated that the previous high in food prices, in 2007-8, drove the number of undernourished people worldwide from 915

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