Wheat Prices: Is this the beginning of another global food price crisis?

Poor people in developing countries spend most of their income on food and grain. When prices rise, it can be devastating.

On Thursday, September 2, Russia announced that it would extend its ban on wheat exports through December 2011. This caused wheat prices that were already very high (having increased by 70% since January) to spike--reaching a two year high in European markets. Since Russia first announced its ban in early August, as a result of drought and wildfires that were devastating its wheat crops, there have been concerns that we might be witnessing a repeat of the 2007-2008 global food price crisis. Russia's recent move and two days of riots in Maputo, Mozambique as a result of a 30% increase in the price of bread that have killed 10 people and left another 443 injured reinforce those concerns.

According to the UN's Food and Agriculture Organization, globally food prices have increased by 5 percent in the last month as a result of the impact of wheat prices but that currently the supply of wheat is sufficient to meet demand. No Russian wheat in the market for the next 15 months however could have a serious impact. Any other shocks to the supply of wheat or any other grain commodity due to weather-related disturbances could translate into further increases in food prices--the Pakistan flood is cause for concern as are poor weather conditions in Ukraine.

Because of the dramatic rise in hunger, the 2007-2008 global food price crisis galvanized the international community to increase investments in agricultural development in poor countries, including the G8's L'Aquila Food Security Initiative and the U.S. administration's Feed the Future Initiative. These investments are beginning to have an impact on raising agricultural productivity among poor farmers and will help increase food and grain stocks in the coming years. What did not happen though was any mechanism or agriculture trade agreement to prevent export bans on food commodities. Also, there is no global grain reserve that could help in times of crisis. The fact that these major issues have not been resolved leaves poor people around the world very vulnerable to the types of actions the Russian government has taken. It is acting in the interests of its people but at a considerable cost to people half way around the world--most prominently, the urban poor in Mozambique. Poor people in developing countries spend the majority of their income (between 60-80 percent) on food and grain. When prices rise, it can be devastating--leading very quickly to worsening hunger and malnutrition.

The riots in Mozambique are an early warning--the international community must prepare to act quickly to shore up safety net programs should food prices continue to rise. It must continue to increase investments in agricultural development in developing countries. And it must tackle the most challenging issues of agricultural trade and climate change--which is already having an impact on agriculture. 

A good resource on food prices is the Financial Times in depth analysis webpage.