Long abstract

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World prices of wheat, coarse grains (in particular corn), rice and oilseed
crops nearly doubled between 2005 and 2007 and continued to rise in early
2008. These prices, along with those of meat, sugar and dairy products, are
likely to ease somewhat in the next 10 years, but are likely to stay well above
the average of the past decade.
This price spike in agricultural commodities is due to a combination of
factors, including droughts in key grain-producing regions, low stocks of
cereals and oilseeds, increased use of feedstock to produce biofuels and
rapidly rising oil prices. The fall in value of the US currency is also partly
responsible, since the price for these commodities is typically quoted in
US dollars. An unsettled global economy also appears to have contributed to
a substantial increase in speculative interest in agricultural futures markets,
helping to boost prices.
These high prices drive up the cost of food and will hit poor and hungry
people hardest, particularly the urban poor in low-income countries.
Food‑importing developing countries overall will have to spend an even
higher share of their limited income on food.
And this is not only a short-term problem. The OECD expects prices to come
down again in future, but not to their past levels. On average over the coming
decade, prices in real terms of cereals, rice and oilseeds are projected to be
10% to 35% higher than in the past decade.
Tight market conditions for essential agricultural commodities pose
policy challenges for national governments as well as for international
organisations. This Policy Brief looks at the causes of the current price spike,
what it may mean for prices in the future, and how governments can craft
policies to cope.