A recent World Bank report on the causes of the rise in food prices during the past three years confirms the view, widely held outside the Washington DC White House and the French farmers’ lobby, that increased bio-fuel production has made a major contribution to rising food prices. According to Rising Food Prices: Policy Options and World Bank Response, global wheat prices rose by 181 percent over the 3-year period leading up to February 2008 and overall global food prices by 83 percent. Food crop prices are expected to remain high in 2008 and 2009 and then begin to decline. They are likely to remain well above the 2004 levels through 2015 for most food crops. Around 15 percent of the increase in food crop production prices is due directly to higher energy and fertilizer costs.
The list of the usual suspects for the cause of this food price boom is not controversial, but the quantitative magnitudes of the individual contributions is. The main drivers are (1) global economic growth and especially rapid growth of real per capita income in the emerging markets (mainly the BRICs), countries whose consumption expenditure share on food (and energy) is still high because of the low levels of real per capita income: (2) crop failures; (3) diversion of crop production away from food into bio-fuels; (4) food subsidies in emerging markets and developing countries and food export controls/taxes/tariffs leading to hoarding in food importing countries; (5) destabilising speculative behaviour in the commodities futures markets.
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