Listen to the Weatherman: Food Prices are Rising Again

In the Russian summer of 2010, the worst drought recorded in 38 years destroyed its wheat crop, sending the world into another food-price crisis that pushed millions of people into hunger while increasing food import bills in low-income countries.Two years later, the world is experiencing similar effects.

The U.S. government's National Oceanic and Atmospheric Administration (NOAA) reported that the first six months of 2012 were the warmest in the United States since recordkeeping began in 1895. Temperatures in maize (corn)-growing states like South Carolina and Georgia went as high as 113 degrees Fahrenheit in June, setting a possible new record. The worst drought in nearly 25 years in the United States, the world's largest producer of maize, has shriveled most of its crop. Hot weather has also affected crops in South America, Russia, Kazakhstan, and China. Maize and wheat prices have increased in the past two weeks. 

On July 11, the U.S. Department of Agriculture (USDA)’s monthly forecast showed an even smaller harvest than previously anticipated, with a projected drop in demand taking stocks off export for use in biofuel production. Following the announcement, the price of maize dropped by 2 percent, but overall the prices of staples - maize, soybeans, and wheat - remain high. Maize and soybeans are traded globally as feed for livestock, but when prices rise, some buyers use wheat as a substitute, which increases the global price. 

Last week, USDA announced that only 48 percent of crops were in a good to excellent condition, down from 72 percent at the beginning of June. This is the worst good to excellent rating since 1988, according to USDA, when 23 percent of crops were given a good to excellent rating. The USDA cut its projections for maize production to a level that is still the third-largest on record but the lowest since 2003. The projections for soybeans have also been reduced by 8 percent - the lowest level since 2003.

A few countries produce the bulk of the world's staple cereals

       
Graphic: Produced by Maximo Torero/IFPRI based on FAO data - A few countries produce the bulk of the world's staple cereals: Major exporters’ shares of global maize and wheat exports, 2008

While food security experts have not yet forecast another food crisis, there is concern that staple grains like maize and wheat could become less affordable for poor and hungry people around the world and that sharp fluctuations in prices could disrupt the efforts of grain-importing low-income countries to stay within their budgets. According to Abdolreza Abbassian, Secretary of the Intergovernmental Group on Grains (IGG) at the United Nations FAO, part of the problem is that just a handful of countries produce the bulk of the world's main staple grains. This makes global prices and levels of volatility more vulnerable to climatic or other external shocks than they would otherwise be.