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www.emeraldinsight.com/1746-8809.htm
IJOEM
6,3 Cross-countries analysis of rising
food prices: policy responses and
implications on emerging markets
254
Abiodun Elijah Obayelu
Department of Agricultural Economics, University of Ibadan, Ibadan, Nigeria
Abstract
Purpose – The purpose of this study is to create an opportunity to see what is wrong with
agriculture and provide an opportunity for much needed change. It identified who benefits or bears the
pains of food prices increase, examines the causes and effects of the increase and discusses policy
responses by various countries and the implications of such interventions.
Design/methodology/approach – Secondary data were employed and analyzed through simple
descriptive statistics.
Findings – The results of the findings showed that increase in food prices affects the nutrition of not
only the poor but also the working and middle classes. It limits the food consumption of the poor and
worsens the dietary quality. It revealed that foods are available in many countries but millions of
people have no purchasing power. Some of the driving forces of price increase include expansion of
biofuels, high demand for food, and high cost of food production, climate change, unfavorable
government policy and underinvestment in agricultural innovation. Contrary to the opinion that
increased food prices benefit farmers, this study observed that the marketers benefit most. High costs
of inputs and inflation make it difficult or impossible to produce by smallholder farmers.
Originality/value – The recent increase in food prices around the world has raised serious concerns
about food and nutrition security of people. As part of intervention, several countries have banned
grain exports and tariff reductions on imported foods in others. The export restrictions and import
subsidies have harmful effects on import-dependent trading partners and give wrong incentives to
farmers by reducing their potential market size. The price controls employed by some countries reduce
farmers’ incentives to produce more food.
Keywords Food crisis, Food policy, Food consumption, Cross-country analysis, Emerging markets,
Food industry
Paper type Research paper
1. Introduction
Food crisis is a traumatic or stressful or abrupt change in the prices of food commodities
leading to a global crisis and causing political and economical instability and social
unrest in both poor and developed nations. Price spikes are not unusual in agricultural
markets, what is unique is the rapid pace and consistency with which prices have risen.
Almost all major food and feed commodities are now much more expensive since the
levels of food production in the last few years are unable to keep up with the sustained
high demand. Although the food prices have always been volatile, the increases of
2006-2008 were of a magnitude and were last seen in the 1970s. The sharp increase in
International Journal of Emerging food prices over the past couple of years has raised serious concerns about food and
Markets nutrition for many poor people in developing countries. The determinants, effects and
Vol. 6 No. 3, 2011
pp. 254-275 policy implication of the dramatic rises in the world food prices deserves to be studied as
q Emerald Group Publishing Limited a results of political, economic instability and social unrest in both poor and developed
1746-8809
DOI 10.1108/17468801111144076 nations is causing. The food prices went up at the same time fuel prices went up

2. (see Figure 1). In 2008, the real international prices of food commodities reached levels Analysis
that had not been seen since the end of the 1970s. For the first time since 1981 the FAO of rising
real food price index surpassed the 150 mark, the result of a sharp increase in 2006-07
was followed by steeper increment in the first part of 2008 (OECD-FAO, 2008). At the food prices
peak of food price increase in the second quarter of 2008, world prices of wheat and maize
were three times higher than at the beginning of 2003, whereas the price of rice was
five times higher. Dairy products, meat, palm oil, and cassava also experienced sharp 255
price hikes. The prices of butter and milk, for example, tripled between 2003 and 2008,
and the prices of beef and poultry doubled.
The scale of food crisis is also unparalleled, affecting in 2007, about countries 47 of
which 27 are in Africa, ten in Asia and the remaining ten in other parts of the world. The
key affected areas are Asia, sub-Saharan Africa and Central America (IFPRI/CGIAR,
2008). The price rises affected parts of Africa particularly severely with Burkina Faso
(Mathieu, 2008), Cameroon, Senegal, Mauritania, Cote d’Ivoire (BBC News, 2008d)
Egypt (BBC News, 2008c) and Morocco with protests and riots in late 2007 and early
2008 over the unavailability of basic food staples. Other countries which have seen food
riots or are facing related unrest are: Mexico, Bolivia, Yemen, Uzbekistan, Bangladesh
(The Philadelphia Trumpet, April 11, 2008), Pakistan (The Independent, 2008), Sri
Lanka (World Socialist Web Site, 2008) and South Africa (The Times, 2008).
This study builds on the work of Sachs and Santarius (2007) and related
background papers. The paper is relevant to policymakers, investors, speculators,
farmers, and millions of poor people with the aims of identifying specifically the short
and long-term causes of rising food prices, examines who benefits or bears the pains
200
150
2005 = 100
100
50
0
1980 Jan
1981 Jan
1982 Jan
1983 Jan
1984 Jan
1985 Jan
1986 Jan
1987 Jan
1988 Jan
1989 Jan
1990 Jan
1991 Jan
1992 Jan
1993 Jan
1994 Jan
1995 Jan
1996 Jan
1997 Jan
1998 Jan
1999 Jan
2000 Jan
2001 Jan
2002 Jan
2003 Jan
2004 Jan
2005 Jan
2006 Jan
2007 Jan
2008 Jan
Food Oil
Notes: Commodity Food Price Index, 2005 = 100, includes cereal, vegetable oils, meat, seafood, sugar,
Figure 1.
bananas, and oranges; price indices crude oil (petroleum); price index, 2005 = 100, simple average of
Food and oil price indices,
three spot prices; Dated Brent, West Texas Intermediate, and the Dubai Fateh
1980 to early 2008
Source: IMF Commodity Price Data, available at from www.imf.org/external/np/res/commod/index.asp

3. IJOEM of food prices increase, policy responses of various governments and the implication of
6,3 their interventions.
2. Literature review
This section presents the major distinction between the current global food price
increases and the other recorded food price increases as well as showing the trends of
256 in food prices across the globe.
2.1 Distinction between the current global food prices increases and other soaring food
price
Before the 2006-2008 price hikes, the real price of food had been falling since the 1950s.
The “green revolution” that began in the mid-1960s saw developing world farmers
planting improved varieties of cereals, prompting extraordinary increases in yields,
falling food prices and reductions in poverty. But since the early 2000s to date, food
prices have risen. The international prices of basic food commodities have increased
rapidly in 2006-2008. The current situation is distinctive because the affected foods are
not just selected few but nearly all major food and feed commodities that are seeing are
concurrence rise up in the world prices’ (FAO, 2008g). Real prices are higher than they
have been since the 1974 price spike. Food price index rose by 9 percent in 2006 and by
23 percent to 37 percent by the end of December 2007 (IFAD, 2008a; FAO, 2008e). But
Hanrahan (2008) opine that in 2007 food price index rose by 36 percent over its 2006
level. In March 2008, food price index was 80 points higher than in March 2007, a rise of
57 percent (Crop Prospects and Food Situation, 2008). According to International Food
Policy Research Institute (IFPRI) reports, since 2000, a year of low food prices, the price
of wheat in international markets has more than tripled, corn prices have doubled, and
the price of rice rose to unprecedented levels in March 2008 (IFPRI, 2008b). A tonne of
wheat for instance moved from $105 in January 2000 to $167 in January 2006 and to
$481in March 2008 (about 30 percent higher than 2007) (IMF, 2008). As of March 2008
maize price was also 130 percent higher than 2007 period. Rice prices after recording
relatively moderate increases of 9 percent in 2006 and 17 percent in 2007, gained 10
percent in February 2008 and another 10 percent in March (FAO, 2008d).
2.2 A review of the trends in the world food prices
Food commodity prices were found to be relatively stable after reaching lows in 2000
and 2001 (Donald, 2008). Between 1961 and 2002 the real international prices of meat,
dairy and horticulture products were also found as roughly constant. On the other
hand real prices of cereals, oil crops, tropical beverages, agricultural raw materials and
sugar were roughly between 50 percent (raw materials) and 100 percent (oil crops)
higher in the 1960s up to 2002 (FAO, 2008f). This means that price declines were
concentrated heavily in basic staple foods, tropical beverages, agricultural raw
materials and sugar. The significant erosion in these prices implies a major shift in
relative prices relative to meat, dairy and horticulture which unlike some staples are
higher-valued commodities. Only countries experiencing rapid technical change
remain competitive in cereals, oilseeds, tropical beverages and sugar. Another major
feature of the period was high volatility in prices, with staggered sharp peaks of all
prices (other than dairy and horticulture). In China, where grain prices are 30 percent
above those of a year ago, the National Bureau of Statistics reports that retail food

4. prices in March were 7.9 percent higher than in March 2003. The price of vegetable oil Analysis
is up by 26 percent, meat by 15 percent, and eggs by 19 percent. of rising
However, beginning from 2006 to early 2008, the prices of some of the most basic
international food commodities increased dramatically on international market for food prices
almost every country. In a World Bank policy research working paper published on
July 2008, an increase in food commodities prices was led by grains with sharp price
increases in 2005 despite record crops worldwide. 257
Between the start of 2006 and 2008 the average world price for rice rose by
217 percent, wheat by 136 percent, maize by 125 percent and soybeans by 107 percent.
In late April 2008, rice prices hit 24 cents a pound (BBC News, 2008b). In some nations,
milk and meat prices were more than doubled between 2006 and 2008, while soybeans
hit a 34-year high price in December 2007 (Adams, 2007). The increase in grain prices
was followed by increases in fats and oil prices in mid-2006. A pound of ground chuck
climbed from $2.10 in 2007 to $2.48 (about 18 percent increases), Pork chops were up
10 percent. Bread and potatoes were up 4 and 3 percent, respectively, price of milk has
increased by 2 percent, eggs by 29 percent and vegetable oil has rose by 23 percent in
2007 compared to 2008 (www.earth-policy.org/Updates/Update39_data.htm).
In December 2008, the global economic slowdown and speculation of decreased
demand for commodities worldwide brought about sharp decreases in the price of staple
crops from their earlier highs. Corn prices on the Chicago Board of Trade dropped from
US $7.99 per bushel in June to US $3.74 per bushel in mid-December; wheat and rice
prices experienced similar decreases (Bloomberg, 2008). The UN’s Food and Agriculture
Organization, however, warned against “a false sense of security”, noting that the credit
crisis could cause farmers to reduce plantings (Financial Time, 2008).
With income growth in emerging economies, globalization and urbanization,
the demand for agricultural products will continue to grow and shift toward high-value
commodities. Partly driven by the expansion of biofuels and demand for feed, strong
global cereal consumption is likely to continue. On the supply side, global production
response has been slow. The overall productivity growth in agriculture is simply too
low to cope with the increase in demand. Between 2000 and 2006, cereal supply grew
by a mere 8 percent and stocks declined to low levels. The production response to high
prices is mainly impaired by land and water constraints, as well as underinvestment in
agricultural innovation. Increased production – driven by higher yields, not by area
expansion – and improved productivity require substantial investments in research
and development (R&D), services and input supply systems. Climate change and rapid
population growth further increase the need for more agricultural science and
technology investment.
3. Method of data collection and analysis
In effort to achieve the above stated objectives, the study gathered data food prices
from different countries. Information was also collected on policy intervention
programs on against hike in food prices. The sources mainly secondary in nature
included government policy and development plan documents, government documents
on macro economic performance, Food and Agriculture Organization statistical
data base, International Monetary Fund (IMF) data based, World Bank (WB),
International Fund for Agricultural Development (IFAD), African Union (AU), United
Nations Children’s Fund (UNICEF), European Union (EU) and published research

5. IJOEM materials from IFPRI, Institute of Development Studies (University of Sussex).
6,3 Other sources include academic journals. The data were subsequently analyzed using
graphs, tables and narrative methods.
4. Results and discussion of research findings
This section presents the major findings on rising global food prices, policy responses
258 and the implications on the emerging market.
4.1 The impacts of rising food prices: who bears the burdens or gains?
The immediate fiscal impacts of rising food prices also vary across countries. High food
prices affect households differently, depending on their production and consumption
patterns and what commodities are produced and consumed, the share of household
income dedicated to food, and the degree to which world prices are transmitted to local
markets. High food prices can also affect different groups within households
differently (IFPRI, 2008a). Research has shown that the rising food price has more
crisis effects on female consumers and producers than their male counterparts.
Food-price increases are having serious consequences for the purchasing power of the
poor (KFSSG/WFP, 2008). In Asia for instance, food expenditures comprise a large
share of the poor’s total expenditures (60 percent). Their expenditures on food and
energy comprise over 75 percent of total consumption expenditures. Millions of people
in this continent as many as 1.2 billion are vulnerable to soaring food grain prices
(Asian Development Bank, 2008). Affected groups include the rural landless,
pastoralists, small-scale farmers and the urban poor (ALNAP, 2008). In Africa, poor
people in developing countries spend between 50 and 80 percent of their income on
food and poor rural households tend to be net consumers of food. Studies have shown
that despite the various causes of food crises, the hardships that individuals and
communities face have striking similarities across disparate groups and settings.
These according to ALNAP (2008) include: inability to afford food, and related lack of
adequate caloric intake; distress sales of productive assets; migration of household
members in search of work and reduction in household spending on healthcare,
education and other necessities.
Hike in food prices resulting to malnutrition and stunting in preschool children
directly affects the ability of the children to learn in school and thus their long-term
ability to earn income as adults (IFPRI/CGIAR, 2008). A 1 percent increase in the price
of food in low-income countries typically leads to a 0.75 percent decrease in food
spending (von Braun, 2008c). At the household level, the poor spend about 50 to 60
percent of their overall expenditures on food. About 160 million people continue to live
in extreme poverty, on less than 50 cents a day. In times of hardship, the poorest suffer
silently, but the middle class typically has the ability to organize, protest and lobby.
At the microeconomic level, whether a household will benefit or lose from high food
prices depends on whether the household is a net seller or buyer of food. While some
households benefit from higher prices, others are hurt by them, depending on whether
they are net producers or consumers of the food staple and the extent to which wages
adjust to higher food price inflation. Surging and volatile food prices most dramatically
affect those who can afford it the least (the poor and food insecure). The few poor
households that are net sellers of food could benefit from higher prices, but those that
are net buyers (the large majority of the world’s poor) are at risk. Contrary to the belief

6. that increased food prices is benefitting farmers, smallholder farmers are suffering Analysis
from high costs and inflation making it impossible to produce. The farmers get the of rising
lowest price for their produce in the season at harvest and thereafter, the produce
passes into the hands of traders and corporate houses that manipulate high prices for food prices
commodities in the futures markets. Traders are seeking to maximize profit by
hoarding stocks because they know the low production will yield higher prices.
In general, poor people, especially in urban areas, suffer due to rising food prices. 259
At the household level, surging and volatile food prices hit the poor. As prices continue
to rise, the poor keeps on experiencing a worsening dietary quality and micronutrient
intake. High food prices erode households’ purchasing power of not only foods but
other goods and services essential for the health and welfare of household members,
including heating, lighting, water, sanitation, education, and health care. Most farmers,
especially the small and poor, do not benefit from the higher prices. Their fertilizer and
input costs increased significantly.
The results of FAO’s empirical study of the effects of food price increases on some
selected countries have shown that, female-headed households suffer more from rising
food prices in terms of declining food consumption than male-headed households.
Among rural households, female-headed households face considerably higher welfare
losses in all countries according to FAO 2008 report (FAO, 2008a). The explanation
for the overall differential impact of price rises on female- and male-headed households
is that at comparable income levels, female-headed households tend to spend a larger
proportion of income on food than male-headed households, and thus they are
hit harder by the impact of high food prices on consumption (FAO, 2008a).
The female-headed households tend to benefit less from potential gains from staple
food crop production because they face a variety of gender-specific obstacles that limit
their ability to produce food. Women often end up being the shock absorbers of
household food security, reducing their own consumption to leave more food for other
household members. In another study in Bangladesh, almost 60 percent of women out
of the total sampled households’ studies were found to skip meals more often than men
for the survival of members of their households (Asian Development Bank, 2001). With
the increase in food prices they are therefore much affected. Female-headed households
are often faced with the problem of having access to inputs and services, land and
credit in particular (Quisumbing and Pandolfelli, 2008).
4.2 Causes of food prices increase
There are a number of complex factors that have contributed to the rise in food prices.
While some of the factors are cyclical, some are structural, other are unique
(IFPRI/CGIAR, 2008). The factors are based on fundamental changes in the global
marketplace that economists’ heralds as “The end of cheap food,” in recognition of a
consensus that prices will not return to 2005 levels. In the horn of Africa for instance, the
food price hike of 1980s and 1990s were characterized by government hostility to
the afflicted population, or by bad relationships between the national government and
the international community (Devereux, 2000). Recent studies have now linked food
price crisis to both short and long-term problems (De La Torre Ugarte and Sophia, 2008).
The systemic causes for the worldwide increases in food prices continue to be the subject
of debate. Initial causes of the late 2006 price spikes has been attributed to unseasonable
droughts in grain producing nations and rising oil prices. The gradual change in diet

7. IJOEM among newly prosperous populations is the most important factor underpinning the rise
6,3 in global food prices (von Braun, 2008c). Agricultural production has not kept up with
the rising demand of cereals for food consumption, cattle feeding and biofuel production
(Wahlberg, 2008). Increase in energy prices and the related increases in prices of fertilizer
and chemicals which are either produced from energy or are heavy users of energy in
their production process leads to increase the cost of food production and higher food
260 prices. Other factors found as responsible for high food prices include income growth;
climate change, high energy prices, globalization and urbanization (von Braun, 2007d, e),
under-investment in agricultural science, market speculation, export bans, drought and
climate variability (Catholic Relief Service Report, 2008). Temperature increases of more
than 38C may cause prices to increase by up to 40 percent (Easterling et al., 2007).
According to IFAD (2008b), world cereal production fell by 3.6 percent in 2005 and
6.9 percent in 2006 due to bad weather in major producing countries. Another major
force altering the food equation is shifting rural-urban populations and the resulting
impact on spending and consumer preferences.
Further causes observed in this study were the increasing use of biofuels in
developed countries (Kazinform, 2008). In addition, since all global commodity markets
are denominated in dollars, the declining dollars makes all commodities cheaper to the
rest of the world, driving up demand and prices (Hanke and Ransom, 2008). At the
country level, these global food price changes have been transmitted to different
degrees owing to factors such as transportation costs, domestic policies and market
structure (von Braun, 2008a).
4.2.1 High food prices and climate change. An increase in food prices are tied to a
host of resource scarcity issues (Center on International Cooperation, 2007) notably
climate change and water depletion. According to Intergovernmental Panel on Climate
Change (IPCC) fourth assessment report, climate change alone is estimated to increase
the number of undernourished people to between 40 and 170 million. Climate change in
forms of droughts, floods, and freezing weather in some countries have led to reduction
in agricultural output. In 2005, extreme weather incidents in major food-producing
countries, possibly related to more general climatic shifts, caused world cereal
production to fall by 2.1 percent in 2006 with increase in food emergencies cases
(FAO, 2008b). For example, in Lesotho and Swaziland, multiple years of droughts
caused “exceptional shortfall in aggregate food production/supplies” (FAO, 2008c).
Droughts in Australia and Eastern Europe and poor weather in Canada, Western
Europe and Ukraine in 2007 led a reduction in available food supplies (Hanrahan,
2008). Also in Nigeria and Ghana, the decline of coarse grain production led to tight
food supply that affected rising food prices in the two countries as well as the
neighboring countries like Benin, Burkina Faso, Niger and Togo. In China’s harshest
ice rains, snow, and freezing weather since 1951 is leading to loss of millions of
hectares of vegetable and oil crops in that countries. In Mongolia, the harsh winter is
having a negative impact on livestock production (Young and Mittal, 2008).
4.2.2 Increase in the production of biofuel versus food crisis. Cars, not people, used
most of the increase in world grain consumption in 2006 (Brown, 2008). The grain
required to fill a 25-gallon gas tank with ethanol will feed one person for a year.
Brazil has been producing ethanol from sugar cane for more than 30 years and the
country now makes up to more than 40 percent of its auto fuel supply with ethanol.
As a result of this alternative of biofuels in place of petroleum that is very costly,

8. USA has mandated an increase from 5 to 10 percent of its auto fuel supply coming from Analysis
ethanol produced mainly from corn (maize) by 2011. Europe has embarked on a of rising
program of promoting biodiesel as a renewable substitute for diesel using temperate
oilseeds such as rape, canola and soybeans (Commonwealth of Australia, 2008). food prices
The 2008 World Development Report “Agriculture for Development” provides a
compelling example of the food-for-fuel debate: over 240 kilograms (or 528 pounds) of
corn which is enough to feed one person for a whole year is required to produce the 261
26 gallons, or 100 liters of ethanol needed to fill the gas tank of a modern sports utility
vehicle. With this, a World Bank policy research working paper therefore concluded
that biofuels have raised food prices between 70 to 75 percent (Donald, 2008). But the
“month-by-month” five year analysis disputed that increases in global grain
consumption and droughts were responsible for significant price increases with only
biofuels having only a marginal impact. Demand for fuel in rich countries is now
competing against demand for food in poor countries.
There are serious issues of how much net energy savings there really are from using
corn produced with high fossil fuel inputs (petrol, fertilizers, pesticides and other
petroleum-based inputs), processed into ethanol with a process that uses high amounts
of energy and at high cost. Further there are significant differences in energy yields from
different feed stocks. For example, one hectare of sugar cane yields 6,000 litres of ethanol
compared to 4,500 litres of biodiesel from palm oil, 3,000 litres of ethanol from maize, and
1,000 litres of ethanol from barley (Worldwatch Institute, 2006). Equally problematic is
the agriculture-led push toward biofuels where corn and sugarcane are being used to
create ethanol, and oil crops are being used to create biodiesel. The World Bank lists the
effect of biofuels as an important contributor to higher food prices. Biofuels have raised
food prices between 70 to 75 percent (The World Bank, 2008). Higher oil prices and a
weak dollar explain 25-30 percent of total price rise (Donald, 2008).
Rising demand for biofuels has increased pressure on the prices of the commodities
used to make them. In addition, high prices for corn and canola (rapeseed) because of
the demand for biofuels, has encouraged producers in the USA and EU to grow these
crops at the expense wheat and soybeans. This has reduced the supply and driven up
the price of a wide variety of commodities not directly used for biofuels. However, other
studies, such as the World Bank contends that oil prices and a weak dollar explain
25-30 percent of total price rise in January 2002 until June 2008 (Donald, 2008). The rise
in food prices is due to poor agricultural policies and changing eating habits in
developing nations and not biofuels as some critics claim (Gernot, 2008).
4.2.3 Increase in cost of food production versus food crisis. Oil is a significant direct
cost to farmers who use it to run farm machinery like tractors and harvesters. High
energy prices have made agricultural production more expensive by raising the cost of
cultivation, inputs especially fertilizers and irrigation and transportation of inputs and
outputs (von Braun, 2008b). This increase in the costs of production has impacted on
commodity prices. The rapid rise in petroleum prices exerted an upwards pressure on
food prices as fertilizer prices nearly tripled and transport costs doubled since 2006.
Increased demand from the biofuels sector also tended to push prices upwards.
In addition, the heightened public interest in disease, food safety and animal welfare
issues are also leading to increased production costs. Disease outbreaks such as foot
and mouth disease, BSE (mad cow disease), swine fever and avian influenza have
resulted in expensive, large-scale culls.

9. IJOEM 4.2.4 Effects of access to key productive assets. Access to key productive assets,
6,3 especially land, is another factor that affects the extent to which households are
positively or negatively affected by higher food prices. Study has shown that, across all
income groups, landless households are on average worse affected by high food prices.
In an overall surplus rice producer such as Vietnam, where access to land is fairly
egalitarian and where there have been impressive gains in smallholder productivity, the
262 poorer rural households’ tend to gain from rising prices. By contrast, in Bangladesh,
where land distribution is not as equitable and rural households have more limited
access to land, the impact of rising food prices is negative for most households. Higher
incomes in emerging markets like China and India was also observed to have resulted in
strong demand for food commodities, meat and processed foods thereby leading to
higher food prices in world markets (FAO, 2008a).
4.3 Empirical evidence of the effects of food prices increase
Rising food prices are having impacts across the world especially among poor people
in the low-income developing countries. There is a clear evidence of the availability of
food in different markets both local markets in different countries and international
market, but millions are without purchasing power. As food prices continue to rise
around the world, poor households which were already struggling to afford basic foods
are being pushed deeper into poverty, while many newly vulnerable groups are
emerging particularly in urban areas (World Vision Food Crisis Global Report, 2008).
Lack of access to food influences food intake, consequently impacting the health and
nutritional status of households. Of the world’s undernourished children, 80 percent
live in 20 countries; nine of these are in sub-Saharan Africa. Malnutrition and death are
not new consequences of high food prices in the free market. High food prices leave
many without the means to satisfy other essential needs (health, housing, schools).
Estimates suggest that up to 105 million people could fall below the $1/day poverty line
due to rising food prices alone. Almost seven years of progress in poverty reduction
appear to have been lost in many countries. It could very well be that the attainment of
all Millennium Development Goals is compromised by the food crisis.
The food price problem has become a security issue in many countries threatening
recent gains in overcoming poverty and malnutrition and is likely to persist over the
medium term (Zoellick, 2008). The poor are suffering daily from the impact of high food
prices especially in urban areas and in low income countries (Zoellick, 2008). The
impact of a price increase is country and crop specific. For every 1 percent increase in
the price of food, food consumption expenditure in developing countries decreases by
0.75 percent (Regmi et al., 2001).
The most alarming, immediate consequence is the incidence of social and political
food-related unrest in a number of countries (High-Level Task Force on the Global
Food Crisis, 2008). Studies have shown different cases of mass protests in 2007 to 2008
against rising prices in more than 30 countries (including Burkina Faso, Cameroon,
Egypt, Guinea, Haiti, Mauritania, Mexico, Morocco, Nepal, Senegal, Uzbekistan and
Yemen) (von Braun, 2008b).
The sharp rise in food prices, especially since mid-2007, has been a major
contributor to the higher rates of headline inflation now being experienced across
world: it is estimated that rising food prices contributed some 44 percent to global
inflation over the 12 months through end 2007, and as much as 67.5 percent in Asia.

10. While the extent of global price transmission varies, in year 2007 there have been Analysis
significant surges in domestic food price inflation in countries such as Sri Lanka of rising
(34 percent), Costa Rica (21 percent), Kenya (31.5 percent) and Egypt (13.5 percent).
In many countries and regions, food price inflation is higher than aggregate inflation food prices
and contributing to underlying inflationary pressures. In Europe and Central Asia for
instance, the overall inflation in 2007 averaged 10 percent, food inflation 15 percent and
bread and cereals inflation 23 percent. This compares to 6 percent overall inflation and 263
6.4 percent food inflation in 2006 (PREM, ARD and DEC, 2008).
Using a sample of household data for eight low income countries, a recent paper
(Ivanic, 2008) analyzes the impacts of higher prices of key staple foods on poverty,
taking into account direct impacts from changes in commodity prices, and impacts
through changes in wage rates for unskilled labor. The results show that, in six of the
eight countries considered, price increases for staple foods were associated with a
significant rise in poverty. Averaging across these eight countries, the increase in food
prices between 2005 and 2007 is estimated to have increased poverty by 3 percentage
points. A recent assessment in Indonesia shows that over three-fourths of the poor are
net rice buyers, and an increase in the relative rice price by 10 percent will result in an
additional two million poor people (or 1 percent of the population). Analysis using an
alternative price index weighted according to the consumption patterns of the poor in
Latin America suggests that in most countries of the region, the effective inflation rate
faced by the poor is higher than the official rate by 3 percentage points (The World
Bank, 2008).
Another study by the World Food Program (WFP) shows that the most vulnerable
populations are running out of coping strategies. People living on less than US$2 a day have
cut out health and education and sold or eaten their livestock. Those living on less than US$1
a day have cut out protein and vegetables from their diet. Those living on less than US$0.50
a day have cut out whole meals, and sometimes go days without meals (Josette, 2008).
A recent study by Aksoy and Isik-Dikmelik (2008) illustrates the extent in which higher
food prices affect urban and rural poor consumers by classifying them into net buyers and
sellers of food. The study concludes that even though there are more poor net buyers of
food than net sellers, half of these net buyers are only marginal buyers of food;
consequently the increase in food prices has in the short-term only a small impact on their
welfare. The same study also found that in eight of the nine countries examined, the
income of net buyers was higher than net sellers of food. This means higher food prices
had a positive redistributive effect, lowering poverty. In any case, if the income of the net
sellers and net buyers are interdependent, higher food prices should also create a
medium-term benefit in generating higher farm and non-farm demand for labor.
In another study, Polaski (2008) reports that rural labor markets played a key role in
transferring the effects of high agricultural prices. For the case of India, the study
documents that higher world prices for rice and wheat have a positive impact in the
rural economy of India. Similarly, in the case of China, the reduction in rural poverty
was attributed to the increase in agricultural prices.
4.4 Government intervention and the implications of such interventions
Specific policies are needed to deal with the changing causes and consequences of high
food prices, to help the most vulnerable people in the short-term, while working to
stabilize food prices by increasing agricultural production in the long-term.

11. IJOEM Two interrelated categories of response have been considered in this study. These are:
6,3 market-level policy responses through trade and market management; and direct
support to consumers and vulnerable groups at the micro-level. High-Level Task Force
on the Global Food Crisis (2008) has therefore developed a detailed set of policy
prescriptions in the Comprehensive Framework for Action (CFA). The CFA highlights
two major objectives which are meeting immediate needs, and building longer-term
264 resilience with related outcomes and actions (High-Level Task Force on the Global
Food Crisis, 2008).
During the global food crises of the early 1970s, the United Nations rose to the
occasion by promptly establishing the World Food Council of 1974 to ensure that
assistance reached the needy nations (Nkire, 2008). The world had witnessed poor crop
yield due to adverse weather conditions in the then Soviet Union, South East Asia,
China and parts of Africa. Today, national governments, the international community
is now identifying how best to address all aspects of the global food crisis and is
aiming to prioritize action over process and operate in a strategic and consistent way.
It is intended to make the best use of existing opportunities to highlight the urgency of
this issue, agree on a common vision and galvanize a coherent, system-wide response.
The aim is that through global coordinated action we can alleviate the emerging
challenges and address the more structural and endemic issues that have put us in this
position in the first place. In general, using ffood price subsidies might be wasteful,
as wealthier consumers would also benefit.
At regional level, high prices have prompted a number of policy responses to ensure
food supplies at more affordable domestic prices (FAO, 2008f, g). Analysis of responses
to the soaring food prices from a sample of 77 countries surveyed in early 2008 by
region shows that, in Asia and in the Middle East and North Africa, both trade and
market management policies were widely used. In Asia, one still finds that open
market operations using publicly held food stocks are used. Examples are open market
operations by the Food Corporation of India, BULOG’s operations in Indonesia and the
Rice Marketing Board operations in Vietnam. In Africa and in Latin America and the
Caribbean, fewer interventionist policies were used, with a significant proportion of
sampled countries not having intervened at all. Given the high costs associated with
open market operations and their unintended effects, the preferred policy has been to
rely on trade for price stabilization (FAO, 2008g and Appendix for detail).
Further findings on government policy on the rising food price at countries level
revealed that, as at April 2008, more than 15 countries including eight major producers
had imposed export restrictions on agricultural commodities. Countries such as
Argentina, Bolivia, Cambodia, China, Egypt, Ethiopia, India, Indonesia, Kazakhstan,
Mexico, Pakistan, Russia, Senegal, Tanzania, Thailand, Ukraine, Venezuela and
Vietnam are among those that have imposed restrictions on exports or banned of
certain agricultural commodities. For instance, In April 2008, the Brazilian government
announced a temporary ban on the export of rice. The ban is intended to protect
domestic consumers (Olle, 2008; The Real News, 2008). In East Africa, Zambia, despite
available export surpluses of corn, has continued an export ban in place for much of the
previous marketing years. China has also banned rice and maize exports, while India
has banned exports of non-basmati rice and pulses, and raised the minimum export
price of basmati rice (Navhind Times, 2008). Mexico has announced a number of
food production support measures and announced that it will reduce fertilizer prices

12. by a third. El Salvador, Guatemala, Nicaragua, and Honduras have jointly agreed to Analysis
cancel the import duty on wheat flour for all of 2008. Argentina has raised export taxes of rising
on soybeans, maize, wheat and beefs in order to increase domestic supplies and,
to partially offset the negative effect of these taxes on farmers’ incomes, is considering food prices
a 20 percent reduction in the price of fertilizers. Ethiopia and Tanzania have banned
exports of major cereals. Other nations, including net food-importing developing
countries have reduced import barriers. Brazil has removed import tariffs on 1 million 265
MTs of non-Mercosur wheat until June 30, 2008. Peru has revoked its tariff on grain
imports and has announced a program to distribute food to the poorest members of its
population. Morocco has cut tariffs on wheat imports from 130 to 2.5 percent; Nigeria
has slashed duties on rice imports from 100 to 2.7 percent; Peru has removed import
taxes on wheat and maize. Senegal has waived duties on cereal imports. Ecuador has
increased the subsidy on wheat flour. Bolivia has authorized tariff-free imports of rice,
wheat, and wheat products, corn soybean oil and meat until the end of May, 2008
(High-Level Task Force on the Global Food Crisis, 2008).
Some of the policy responses (such as export bans) may reduce risks of food
shortages in the short-term, but they are likely to backfire by making the international
market smaller and more volatile. Price controls reduce farmers’ incentives to produce
more food and divert resources towards helping people who do not really need it.
Export restrictions and import subsidies have harmful effects on import-dependent
trading partners and also give wrong incentives to farmers by reducing their potential
market size. Any long-term strategy to stabilize food prices will need to include
increased agricultural production.
Many other countries are also taking ad hoc steps, such as export restrictions, food
stamps or vouchers, restricted cash transfers, school feeding programmes, restrictions
on stockholding by private traders, restrictions on inter-district movement of foods and
open market operations, such as selling public stocks of foods to reduce market prices
and price controls to minimize the effects of higher prices on their populations. Various
kinds of cash transfer programs are currently used in Brazil, China, Ethiopia, Egypt,
Indonesia, Mexico, Mozambique, South Africa, Sri Lanka, and Tunisia. The use of cash
transfers intervention is appropriate where local food markets function well and
improving access to food is the objective. Vouchers become a parallel currency in food
and other goods’ markets. As such, they can have some of the positive effects of
unrestricted cash transfers in fostering local market development, but, due to their
restrictive use, tend not to be used for investment. The schemes also tend to have
higher transaction costs than cash based measures.
Other countries, including Burkina Faso, Brazil, China, Kenya, Honduras, Mexico
and Mozambique, make effective use of school feeding programs to improve the food
intake of school-age children and their families. But on the other side, school-based
programs do not typically address child malnutrition at its most critical point when
children are in their infancy. South Africa is expanding allocations to its school
nutrition program to keep pace with the rate of food inflation. The use of school feeding
programmes sometime miss the target populations, such as poor households without
children, or whose children do not a attend school (FAO, 2008f).
To boost agricultural productivity and rescue the scourge of rising food prices,
China, Pakistan, Malawi, Zambia, Mexico and Argentina have introduced agricultural
production support programs, including input subsidies. Bangladesh, Thailand,

13. IJOEM Malaysia, Senegal, South Africa, Zimbabwe, Ethiopia, Peru and Ecuador have
6,3 provided subsidized commodities or developed safety net programs for vulnerable
groups, including raising local wages for public sector workers, while countries like
Philippines, Liberia, Cote d’Ivoire, Tanzania, El Salvador, Guatemala, Nicaragua,
Honduras, Brazil, Peru and Bolivia have all reduced or eliminated price import
restrictions on certain agricultural goods. For instance, South Africa, which has an
266 extensive social safety net program, has announced an increase in disability and old
age payments, and increased social grants (cash grants) to poor families. Ethiopia,
which also has a social safety net program, has announced wheat subsidies of $38
million, and fuel subsidies of $366 million. Ethiopia is increasing the wheat ration it
distributes to 800,000 low-income urban residents. Ethiopia also has increased the cash
wage rate of a large cash-for-work program by 33 percent. Ethiopia’s government has
also announced it will increase imports of sugar, wheat, and cooking oil. Tanzania has
authorized duty-free imports of 300,000 metric tons of corn, and banned exports of
agricultural commodities (Hanrahan, 2008).
Government policies to encourage the use of biofuels include production/
consumption subsidies and mandatory blending requirements. The policies, together
with an increase in demand for alternative fuels as oil prices have risen thereby
causing biofuel production to rise rapidly. The EU and the US provide the greatest
support for biofuel production. However, Brazil and China are also major ethanol
producers, with strong government policy support, albeit with less government
funding. Malaysia and Indonesia, the dominant palm oil producers, are also rapidly
increasing production of palm oil for biodiesel.
In Cameroon (the world’s fourth largest cocoa producer), part of the government
response to the protests on food price hike was a reduction in import taxes on foods
including rice, flour, and fish. The government reached an agreement with retailers by
which prices would be lowered in exchange for the reduced import taxes. As of late
April 2008, however, reports suggested that prices had not eased and in some cases
had even increased (IRIN, 2008). China has banned rice and maize exports and India
has banned exports of rice and pulses. Argentina has raised export taxes on soybeans,
maize, wheat, and beef, and Ethiopia and Tanzania have banned exports of major
cereals. Other countries such as Kazakhstan, Pakistan, Russia, Vietnam, Zambia,
Argentina, Cambodia, China, Egypt, Ethiopia, India, Nigeria in the recent past have
also banned exportation of some selected products were imposed for example by: these
steps can add up to policy failures. Policy responses such as export bans or high export
tariffs may reduce risks of food shortages in the short-term for the relevant country,
but they are likely to backfire by making the international market smaller and more
volatile. Export restrictions have harmful effects on import-dependent trading
partners. For example, export restrictions on rice in India affect Bangladeshi
consumers adversely and also dampen the incentives for rice farmers in India to invest
in agriculture, which is a long-term driver of growth. In addition, export bans stimulate
the formation of cartels, undermine trust in trade, and encourage protectionism. At the
country level, price controls can also backfire by reducing farmers’ incentives to
produce more food and diverting resources away from those who need them most.
In addition, various kinds of cash transfer programs are currently used in Brazil,
China, Ethiopia, Egypt, Indonesia, Mexico, Mozambique, South Africa, Sri Lanka, and
Tunisia. Several of these countries are adjusting current programs in response to the

14. rise in food prices. For example, in Ethiopia, where food price inflation in February Analysis
2008 was 23 percent (year on year), the Government has raised the cash wage rate of of rising
the largest cash-for-work program by 33 percent (Robinson, 2008).
Other countries have contributed to the expansion of global food demand. Some net food prices
food-importing developing countries, for example, have reduced import barriers in
principle a welcome move toward more open trade but in practice a factor in the
upward pressure on prices. The increases in food prices now have a dominant role in 267
increasing inflation in many countries. It would be inappropriate to address these
specific inflation causes with general macroeconomic instruments such as monetary
and interest rate policies, which have the potential to trigger a general slowdown and
make the economic situation even worse. But the restrictive agricultural trade policies
adopted by several developing countries also undermine the benefits of global
integration, adding to the distortions already created by rich countries’ longstanding
trade policies (IFPRI, 2008a).
France, Germany, the UK and the USA governments have supported biofuels with
tax breaks, mandated use and subsidies. These policies have the unintended
consequence of diverting resources from food production and leading to surging food
prices and the potential destruction of natural habitats (Andrew, 2007).
A number of countries including Argentina, China, Benin, Malaysia, Senegal,
Egypt, Mexico, Morocco, and Russia, have responded by adopting price controls on
food to limit the prices farmers receive for their goods. But this will make the situation
worse, especially for importing countries. Price controls could remove incentives for
farm-ers to produce more. But if the price controls are explicitly introduced as a
temporary measure and are widely felt to be justifiable in terms of a higher social goal.
In such cases, the risks of entrenchment will be minimized, as observed in recent
interventions to limit price increases for staples during Ramadan in Morocco.
Other measure that has been used at meeting hunger needs of vulnerable people
throughout the world is the United Nation WFP. The WFP is one of the largest
purchasers of food in the developing world to assist the poor having neither access nor
purchasing power to food. WFP is the world’s largest food aid provider. In 2007, the
WFP provided $2.7 billion of food aid to an estimated 70 million people in 80 countries.
The USA contributed 44 percent of this amount or $1.2 billion in 2007. This percentage
has been the USA’ average annual contribution to the WFP since 1999. Other major
donors to the WFP in 2007 included the European Union (the EU Commission and
individual EU member countries), $586 million; Canada, $161 million; and Japan,
$118 million. For example, during the recent floods in Mozambique, there was plenty of
food on local markets, but the food could not reach the victims and they could not
afford to buy it. WFP thus purchased 80 percent of the food for the victims from
Mozambican farmers, creating a win-win solution (WFP, 2008).
A number of countries and international organization in order to ease the hardship
created by the global food prices increase have also granted financial assistance to
support poor farmers to produce more food to meet up with demand at lower price. For
instance, IFAD in 2008 made up to US$200 million available to support poor farmers
boost food production in face of the global food crisis (IFAD, 2008b). On May 2, 2008
US President announced an extra $770 million funding for international food aid (BBC
News, 2008a). The Government of Yemen in 2008 started to supply wheat in selected
markets at subsidized rates following a sharp rise in food prices. Also in the early 2008

15. IJOEM the Government of Pakistan announced that it was reviving a ration card system to
6,3 distribute subsidized wheat. However, the implication of subsidizing food is that
government can become entrenched thereby incurring high fiscal costs, and if
consumer subsidies are met to keep producer prices low, subsidizing can create
disincentives for domestic food producers, and end up being counterproductive.
As a measure to lower food prices increase, countries such as Japan released up their
268 rice reserves onto the market in 2008 which brought rice price down significantly by
14 percent in a single week in that country (Leo, 2008). On April 30, 2008 Thailand
announced the creation of the Organization of Rice Exporting Countries (OREC) with
the potential to develop a price-fixing cartel for rice (BBC News, 2008e). This is seen by
some as an action to capitalize on the crisis.
In June 2008 the FAO hosted a High-Level Conference on World Food Security, in
which $1.2 billion in food aid was committed for the 75 million people in 60 countries
hardest hit by rising food prices (BBC News, 2008e).
As a measure to encourage food production and reduction in food prices, the US
government pays farmers to “idle their cropland” under a conservation program. This
policy reached a peak of 36,800,000 acres (149,000 km2) idled in 2007, that is 8 percent
of cropland in USA, representing a total area bigger than the state of New York
(New York Times, 2008).
5. Conclusion and recommendations
The effects of higher food prices radically differ across countries and population groups.
The most recent food crisis that started from 2006 through mid-2008 had serious
implications for food and nutrition security, macroeconomic stability, and political
security in virtually all countries. The Food price increase is playing a dominant role in
increasing inflation, undermining livelihoods and food security in many countries. It has
stoked inflation and squeezed the fiscal space in many countries. It has also increased the
risks of higher interest rates and a slowdown in economic growth across Africa, Asia
and Pacific regions. It is also threatening to undermine the global fight against poverty.
The observed increase in food prices is not a temporary phenomenon, but likely to
persist in the medium term. Food price hikes in different countries have been linked to
higher energy and fertilizer prices, a weak dollar and export bans, high oil prices, energy
security and climate change leading to increase bio-fuel production and use. Many
governments are already taking action by expanding targeted safety nets, such as cash
transfer programs to vulnerable groups, food-for-work programs, or emergency food aid
distribution, lowering of tariffs and other taxes on key staples in order to provide some
relief to consumers. In contrast, other countries have put in place food-rationing systems,
price controls and export bans. Of all the interventions, exports ban is seen as least
helpful, as pulling commodities off the market only exacerbates price increases
elsewhere. Import subsidies and export taxes or bans may reduce risks of shortages for
national consumers in the short-term, the policy may backfire by making the
international market smaller and more volatile, distortion of incentives globally and in
various country and eventually lower food production.
Most of the interventions put in place by different countries are also considered
short-term, they may therefore not be maintained if food crisis continued into the
medium term (i.e. more than six-12 months). Without serious government intervention,
this study observed that the benefits from price increases will continue to go to the

16. large-scale commercial operations and agribusinesses rather than to small-scale Analysis
producers in remote markets. of rising
In determining the appropriate policy responses to rising food prices, the root
causes of the price shock must be well-understood. The choice and design of food prices
intervention policy against food price increases by any country must recognize that the
transaction costs associated with the different interventions varies significantly
depending upon the specific context in which they are to be implemented. Schemes 269
appropriate for densely populated cities with well developed financial services may be
inappropriate in sparsely populated rural areas.
In view of the ongoing food price increases and assessment of policy interventions
from various countries and there implications, there is the need for comprehensive
responses by national governments with the support of the international community.
Policy responses must go beyond food aid in the short-term to promote stronger
agricultural growth. It would be a misguided policy to address the inflation with
general macroeconomic instruments. Rather, specific market and productivity-related
policies are important to deal with the causes and consequences of high food prices.
To counteract dramatic increases in costs and demand, and bring food prices back
to levels that the poor can afford, it is important to increase agricultural productivity.
Boosting agriculture will potentially increase the supply of food to local markets,
reduction in poor farmers’ need to purchase food and increase in farmer’s income from
the sale of food at higher prices.
Any shorter-term agricultural interventions such as food aid must be linked to
longer-term national policy and practices in the areas of environment, production and
markets. For instance, provision of chemical fertilizer and pesticides may generate a
rapid and significant impact but may be unsustainable in the long-term, as these inputs
are costly to purchase and can damage the environment and soil quality. Carefully
subsidized programmes for seeds, fertilizers, irrigation, technologies and water should
involve the private sector from the beginning.
Short term approaches, such as the distribution of food aid, are most appropriate
where insufficient food supply is the main reason for reduced consumption. Longer
term measures will serve better through facilitating access to inputs, and/or improving
technologies and infrastructure to increase the production of food.
As a result of the role of biofuel in food price increases, it becomes imperative for
developed countries to facilitate flexible responses to price increases by eliminating
trade barriers. Biofuel subsidies and excessive blending quotas may be revoked and a
full-scale moratorium on biofuels from grains and oil seeds can be considered for some
months. Local and domestic use must be the priority for biofuels development.
Programmes that set aside agricultural resources, except in well-defined conservation
areas can also be terminated.
Policy intervention is also required to ensure household food security by providing
safety nets such as cash vouchers and subsidized food, to help poor households afford
adequate nutrition. Ensuring access to food for all also depends on a reliable grain
reserve, both to protect against dramatic price increases when a harvest falls short, and
to protect long-term investment in agriculture.
Where input markets are working well and inputs are available, but producers are
cash-constrained, voucher systems may be best, as free distribution of inputs could
undermine input markets. But where input markets are not functioning well, starter

17. IJOEM packs could be distributed. In countries where local output markets are not well
6,3 integrated with larger markets, interventions for increased production could result in a
significant fall in local food prices to the detriment of producers and wage laborers.
Governments must also pay much greater attention to the needs of women who are
much affected by the soaring food price and overwhelmingly responsible for food
production worldwide (upwards of 70 percent) but own nearly none of the land, receive
270 nearly none of the extension services and who are systematically discriminated against
by many official agricultural policies. There is also the need to enforce land reform
measures that protect smallholders’ access to their land and that redistributes land
where inequality is extreme.
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Overseas Development Institute (2007), “Rising food prices: a global crisis”, April 22, 2008.
Pretty, J. (2005), The Earthscan Reader in Sustainable Agriculture, Earthscan, London.
Appendix. Country policy responses to increase in food prices
(continued)

21. IJOEM
6,3
274
(continued)

22. Analysis
of rising
food prices
275
About the author
Abiodun Elijah Obayelu started his educational career in University of Ilorin, Kwara state,
Nigeria where he obtained Bachelor degree in Agriculture (B. Agric) in 1995. In 2002, he obtained
Master’s in Business Administration (MBA) and Master’s in Agricultural Economics from
University of Ilorin and Ibadan, Nigeria, respectively. His fields of interest include: economic
theory, agricultural policy, agricultural innovation and environmental issues. He was University
of Ibadan Postgraduate School Teaching and Research Assistant between 2005-2007. He is at the
final stage of his PhD degree program in Agricultural Economics of University of Ibadan. He has
published extensively in both international and local journals and has to his credit over 12
publications besides conference proceedings and chapters in at least three different books. He is a
member of both international and local associations including the African Association
Agricultural Economists (AAAE), African Financial and Economics Association (AFEA),
Chinese Economics Society (CES), and African Economics Research Consortium network
member. Abiodun Elijah Obayelu can be contacted at: Obayelu@yahoo.com
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