Food prices hit a record in July — World Bank

Source: Tiffany Stecker, E&E reporter • Posted: Tuesday, September 4, 2012

Food prices rose 10 percent in July with corn and soybeans reaching an all-time high due to the worst drought in more than 50 years in the United States, according to the World Bank Group.

The group’s quarterly Food Price Watch reports that corn and wheat prices both rose by 25 percent and soybean prices increased by 17 percent. The price of rice dropped by 4 percent. These indicate a 6 percent increase over food prices in July of last year and 1 percent more than the record peak achieved in February 2011.

“No one could have predicted there would be such a severe drought,” said report author José Cuesta, a senior economist at the World Bank. High corn prices in the spring encouraged farmers to plant a record number of corn acres.

The World Bank’s measures are higher than the U.N. Food and Agriculture Organization’s 6 percent increase during the month of July. FAO found that corn prices rose 23 percent and wheat prices 19 percent, while the price of rice remained unchanged (ClimateWire, Aug. 9).

While the American drought is largely to blame, high heat in Russia, Ukraine and other Eastern European countries that export a high volume of wheat also contributed to the rise. Erratic rains in Brazil, a big exporter of sugar cane and soybeans, made for a lean harvest. India, while not a food exporter, was hit with an unusually low monsoon that affected prices domestically. The high population of India — and the internal increase in prices — put pressure on the global index, Cuesta said.

The last Food Price Watch, released in April, found that prices had steadily increased by 8 percent since December of last year, following a four-month decrease (ClimateWire, April 26).

The regions that are most vulnerable to the price spike are sub-Saharan Africa, North Africa and the Middle East. The countries in these regions are heavily dependent on imported grains, Cuesta said, but other factors — like the timing between growing seasons, high energy and transportation costs, and the overall percentage of household income going to food — play a role.

Ethanol waiver may be ‘too little, too late’

Many experts tie the revolts of last year’s Arab Spring in part to the price spike in February 2011. Jason Clay, senior vice president of market transformation with the World Wildlife Fund, predicts that about a dozen governments will fall in the next year, directly or indirectly caused by food insecurity.

“It means going from three meals per day to two or maybe one,” said Katie Campbell, a senior policy analyst with humanitarian group ActionAid.

The drought in the United States has served as a new platform for the debate on whether federal incentives to promote corn ethanol for fuel are raising food prices. Ethanol promoters, with the support of recent economic analyses, say that the price spikes are due to the drought alone, not ethanol.

But groups such as ActionAid, along with the United Nations, the Organisation for Economic Co-Operation and Development and the International Food Policy Research Institute, maintain that government mandates — like the renewable fuel standard in the United States and the directive for renewable energy in transport in the European Union — are putting pressure on food prices and have called for a revision of the mandates.

In the United States, livestock producers, environmental groups and state governors have asked U.S. EPA to waive the production requirements for ethanol in light of the drought.

While Campbell supports a revision of the renewable fuel standard, she is unsure whether a one-time waiver will deflate food prices.

“Some say it’s too little too late, some are saying we should still move forward with it,” she said. A waiver would be a short-term fix to long-term climate change, she added, and more comprehensive adaptation must be done.

“This drought is not a one-on, one-off anomaly,” Campbell said.