Global Economy : The Coming Food Price Shock

The world economy is soon going to face food price shock as majority of the nations are concerned about runaway food prices and consequent inflationary pressures.

Volatile commodity prices have brought disaster in the developing world, threatening food supplies in some countries and creating sharp inflation in others. Food price inflation rears ugly head in Asia while India is battling the highest inflation amongst major Asian economies. Against this backdrop, UN’s Food and Agriculture Organization (FAO) warned that the world could see repetition of the 2008 global food crisis if prices rose further.

In 2008, food crisis was driven in part by unusual weather factors as well as the ethanol boom. However, the present food crisis is driven by greater demand and current floods in Australia and Brazil which threaten upcoming harvests. Further, Russia’s drought and fires in 2010 forced Moscow to ban grain exports while in some countries food riots have taken place. Given that, soaring global food prices spark fears of social unrest in many countries.

This is only adding to the pressure on the central banks, which are already concerned about rising international fuel prices. Worse, the latest World Bank report predicts that future food prices are unlikely to return to the very low levels seen at the turn of the millennium. A second food crisis in just two years is a wake-up call for the policy makers.

Amidst growing concerns, the G20 the group of global powers is preparing to tackle another of the world's most urgent issues – wild swings in food prices after the financial crisis. The group is considering the possible options like building and managing larger food reserves, beefing up the United Nations’ monitoring of global crops, and pushing for reduced farm subsidies. France has moved a step ahead by demanding to clamp-down on stock market trading rules for the agricultural sector in response to the concern that speculators are destabilizing the prices of the world’s most basic items.

A bitter truth is, during the last two years, a mishmash of the food crisis and the global economic recession has catapulted the number of hungry people in the world to more than one billion. Against this, the United Nations says world food output must grow by 70% over the next four decades to feed a projected extra 2.3 billion people by 2050. This month end, global leaders are gathering in Rome for the FAO's World Summit on Food Security and will hear competing arguments over how best to tackle the problem. However, food experts suggest that one of the fiercest disputes will be over the relative importance of science versus social and economic reforms to empower small farmers to grow more with existing technology.