As food prices spike, how close is the world to another crisis?

August 9, 2012

(Supri/Reuters)

Back in 2008, not long before the world's financial system seized up, global food prices hit record highs. Consumers in the United States barely felt it, but for many poorer nations around the world, it was a full-blown crisis. Riots broke out in dozens of countries from Cameroon to Egypt to Bangladesh. In Haiti, more than five people were killed and the government was toppled as the price of rice, beans, and fruit rose more than 50 percent.

Could we see a repeat of that chaos this year? The newest report from the U.N. Food and Agriculture Organization (FAO) suggests that food prices still aren't anywhere near 2008 levels yet, even after the massive U.S. drought has hurt corn and grain production. But there's also reason for concern—in July, the FAO food index jumped the most in a single month since 2009:

According to FAO, drought and severe heat in the United States have pushed corn prices up 23 percent in the past month, while unexpected dry weather in Russia has sent wheat prices up 19 percent. Soybean prices are also now at record level (a development that has roiled Indonesia's tofu industry). For now, however, those pressures all being tempered somewhat by the fact that rice, meat, and dairy prices are still holding steady.

One big factor that makes this year different is that the 2008 food crisis was driven, in large part, by record-high oil prices that hurt all aspects of industrial agriculture, from fertilizer to operating farm machinery to food transportation. This year, by contrast, while oil prices are fairly high, they're not at 2008 levels, and the world has had time to adjust.

Even so, some experts are worried about the current situation. Unlike in 2011, when food prices also spiked, global food reserves are low this year. And there's the risk that food-producing nations could send prices skyrocketing further by clamping down on agricultural exports, the way they did in 2008. (Russia's deputy prime minister recently caused a stir when he ruled out a grain export ban, but suggested further tariffs were possible down the road.)

FAO senior economist Abdolreza Abbassian summed up the reasons for alarm in an interview with Reuters: "There is an expectation that this time around we will not pursue bad policies and intervene in the market by restrictions, and if that doesn't happen we will not see such a serious situation as 2007-08. But if those policies get repeated, anything is possible."

Other groups, meanwhile, are arguing that the current price spike should prompt policymakers to rethink their approach to global agriculture—whether or not we get a 2008-style crisis. "World leaders must snap out of their lazy complacency and realize the time of cheap food has long gone," said Oxfam's Colin Roche in a statement. He argues, among other things, that the U.S. and E.U. should scrap their biofuels programs that divert food for fuel and should also start preparing more forcefully for climate change, which is expected to increase the frequency of drought and could provoke similar food price spikes in the years ahead.

Related: Amid a devastating drought, does it still make sense to use corn for fuel?

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Sarah Kliff · August 9, 2012