Agriculture, Economics and Nature

Week 1
Agricultural production and prices, and agriculture’s reliance
on natural resources

Segment 5
The 2007 Food Price Crisis
Winthrop Professor David Pannell
University of Western Australia (Heath 2001) (CC BY)
 AGRICULTURE, ECONOMICS AND
NATURE WEEK 1
AGRICULTURAL PRODUCTION AND PRICES, AND AGRICULTURE’S RELIANCE ON
NATURAL RESOURCES

SEGMENT 5
THE 2007 FOOD PRICE CRISIS
What happened?
• Increased world food prices,
2006 to 2008
– Rice (up by 217%)
– maize (+125%)
– wheat (+136%)
– soybeans (+107%)
• 130-155 million more people in
poverty
 Global food price trends
300

Earth Policy Institute - www.earth-policy.org

Price Index (2002-04=100)

250 2007 Food Crisis

200

150

100

50

0
1990 1995 2000 2005 2010
Source: FAO
• High food prices caused
political and social instability in
a number of countries
– Africa
– Asia
– Middle East
– Latin America
– The Caribbean
(Magharebia 2011) (CC BY)
Why did it happen?
• Increasing oil prices
• Export restrictions
• Increasing biofuel
production
• Panic buying
• Droughts
(Russo 2007) (CC BY-SA)
Increasing oil prices
• Price tripled January 2007
to July 2008
• Higher cost of production,
processing and distribution
for agricultural commodities
Price Supply 2

P2
Supply 1
P1

Demand

Q2 Q1 Quantity
of food
(USDA 2010) (CC BY)
Export restrictions
• Desire to contain domestic prices
• Countries restricted cereal exports
– Argentina
– China
– India
– Egypt
– Pakistan
– Russia
– Ukraine
– Vietnam
Price Supply 2

P2
Supply 1
P1

Demand

Q2 Q1 Quantity
of food
(TheFriendlyFiend 2007) (CC BY-SA)
Increasing biofuel production
• Strong policy support for
biofuel production
• Food crops used for the
production of biofuels (e.g.
maize in the US)
• One fuel tank of ethanol uses
enough grain to feed a person
for a year
Source: http://oecdinsights.org/2010/01/25/biofuel/
 Supply 2
Price

P2
Supply 1
P1

Demand

Q2 Q1 Quantity
of food
(Massny 2008) (CC BY-ND)
Panic buying
• Some countries bought
more grain than needed -
increased stocks to contain
domestic prices (e.g.
Bangladesh, Nigeria, Gulf
countries, the Philippines)
• Large food losses and waste
resulted
Price
Supply

P2

P1

Quantity
Q1 Q2
of food
(Plant Industry) (CC BY)
 Drought
• Drought caused crop failures in some
regions
• Example: Murray-Darling Basin in
Australia
– Australia is the second-largest
wheat exporter
– Wheat production: up to 25 million
tonnes
– The 2006 harvest was only 10
million
Price Supply 2

P2
Supply 1
P1

Demand

Q2 Q1 Quantity
of food
• Higher costs, less
production, less coming
onto world market, panic
buying
• All these factors combined
to cause large rapid price
increases
• They subsequently fell
 Global food price trends
300

Earth Policy Institute - www.earth-policy.org

Price Index (2002-04=100)

250 2007 Food Crisis

200

150

100

50

0
Jan-90 Jan-95 Jan-00 Jan-05 Jan-10
Source: FAO
• Prices rose again and have been volatile since
then
• Probably stayed relatively high because some of
the factors I’ve talked about have stayed in place
– High oil prices
– Biofuel policies
• Perhaps longer term reductions in ag R&D
 Global food price trends
300

Earth Policy Institute - www.earth-policy.org

Price Index (2002-04=100)

250 2007 Food Crisis

200

150

100

50

0
Jan-90 Jan-95 Jan-00 Jan-05 Jan-10
Source: FAO
Is cheap food finished?
800
700

Wheat Price
600
500
400
300
200
100
0
1850 1900 1950 2000
Source: Harvey et al., 2010
 Summary
• The 2007 Food Crisis: a
spike in world prices
• Low-income people in
developing countries
severely impacted
• Five contributing factors with
clear effects on supply or
demand