High Food Prices: 10 Questions Answered

The recent drought in the United States and its impact on maize prices has focused the world's attention back onto global food prices. The latest data from the UN Food and Agriculture Organization shows that prices are in fact up a little after a period of decline. High food prices not only put a strain on the already tight food budgets of the world's poor, but raise the price of helping them with food aid.

ROME - The causes and the effects of the current high food prices are diverse. To help you get a grasp of what it all means, here are the answers to 10 key questions:

1. How high are food prices really?
The global food price index produced by the UN Food and Agriculture Organization (FAO) climbed by 6 percent to 213 points in July after three months of decline. But this is still well below the historic peak of 238 points, which was reached in February 2011.

2. What produced the sudden rise in July?
The sharp rebound was mostly driven by a surge in grain and sugar prices. According to FAO, the recent drought maize-growing areas of the United States means the US crop is expected to be considerably lower than previously predicted. This pushed maize prices up by 23 percent in July.

3. Is this the start of a new upward trend?
It's too early to say. For the time being rice prices are stable and that is an important factor. But, in general, there are many signs that high food prices and volatility will continue in coming years, making farmers, consumers and countries more vulnerable to poverty and food insecurity. FAO wrote an informative report on this in 2011.

4. Why should volatility continue?
One reason is that experts expect extreme weather will become more frequent in coming years, and this will have an impact on crop production. Another is that there will be increasing demand for food from consumers in fast-growing economies. Meanwhile, growth in biofuels is also a factor, the FAO report says. Of course, there is also the simple fact that the world's population is growing.

5. What sort of countries are vulnerable to rising food prices?
High food prices are a problem for poor countries that have to import a lot of food to feed their populations. Countries will also be vulnerable if they already have high inflation, have limited foreign currency reserves and if their local currencies are depreciating against the US dollar.

6. How do people in poor countries cope?
In some of the countries where WFP works, there are households that spend as much as 60-80 percent of their income on food. In these situations, higher prices clearly hit hard. Families cut the number of meals they have a day, they buy cheaper, less nutritious food and spend less on things like schooling and medicine.

7. Aren't high food prices good for poor farmers?
High food prices could represent an opportunity for people who make a living from agriculture. The trouble is that many of these people don't produce enough food even for themselves, let alone to sell any. Many do not have access to the markets where prices are higher nor the resources they need for inputs like fertilizer to increase their yields.

8.  How do high food prices affect WFP?
Rising food prices affect WFP in two ways: it costs us more to purchase food for the hungry and, the number of people needing food assistance increases. If prices continue to rise, WFP could face a budget gap.  We will then be forced to make the kinds of painful decisions that we faced in 2008 - reduce rations, decrease beneficiaries or seek additional resources.

9.  How much food does WFP buy?
In 2011, WFP bought US$ 1.2 billion worth of food commodities. Of that, US$ 870 million came from developing countries. WFP tries to forward purchase food while market prices are relatively low  in order to minimise the impact on our budget, but every 10 per cent increase in the price of our food basket, costs us an additional US$200 million a year to buy the same amount of food.

10.  How can we ensure a stable food supply to the most vulnerable populations?
There are several things that countries can do. A key one is to develop emergency food reserves systems. Another important answer is to scale up 'social safety nets' such as mother and child nutrition programmes and school meals programmes. It's also crucial to support smallholder farmers, many of whom are women. Strengthening commitments to exempt humanitarian food from export bans would also be advisable. See WFP's 5-point plan