Between the 1950s and the early 2000s, prices of cereals on world markets fell in real terms remarkably: in 2001 the price of maize was just 25% of the 1957 level, while those for rice were 20% and for wheat 31% of that level. Yet subsequently these prices have tended to rise, with a notable spike in 2007/08 producing the sharpest increase in food prices seen in the 34 years since the early 1970s. Prices fell back, but again have surged to remain well above those seen at the turn of the century.
Forecasts for the next ten years see cereals prices as remaining high in real terms. Moreover, there are fears that volatility of prices may be increasing so that the chances of another price spike are uncomfortably high.
Price spikes are damaging to the poor, at least in the short term. Even if most of them live in rural areas and have livelihoods in and around farming, many are net buyers of food so that increases in food prices lead to hardship and potentially to malnutrition. At national level, low income countries are faced by heavy increases in the cost of imported food, draining foreign exchange, importing inflation, and putting a brake on their growth and development.
In the medium term, however, farmers will have more incentive to produce more and may see their incomes rise. More agricultural output at higher prices could well benefit smallholder farmers, those who work for them, and those who work in food processing and marketing.
As the world adjusts to higher food prices, ODI studies:
- Changes in international cereals markets, tracking prices and their determinants to anticipate significant price movements in the near future;
- The causes of higher food prices, including links to oil prices and associated demand for biofuels;
- The impacts of higher prices on poor and vulnerable people;
- Potential policies to mitigate harm, as well as policies to help farmers grow more food, and push prices back down; and,
- Links from agriculture to poverty to hunger and malnutrition.