Following a major increase in cereal prices over the past year, the current global environment indicates that “the era of cheap food is over,” write Juan Delgado and Indhira Santos in a July policy brief for the Bruegel think tank.
Many factors combine to suggest that food prices are likely to remain high in the medium term, says the paper. Indeed, negative supply shocks such as high oil prices are accompanied by positive ones which correspond to the rising demand from emerging economies and biofuels, it explains.
The factors that led to high food prices are “temporary shocks to the food equation, while others imply permanent changes,” argue Delgado and Santos. Some factors, such as “weather-related shocks”(floods, droughts) are cyclical while the “permanent changes” are structural ones caused by higher demand for food, increased biofuel production and higher input prices. The paper also stresses that biofuels constitute an “additional source of demand” and do not “contribute to energy security”.
The paper thus advocates increasing acreage worldwide and boosting productivity in developing countries, calling for these responses to feature “at the top of the agenda”. Another necessary measure would be to adapt current EU policies, “particularly those related to biofuels, trade and development,” states the paper.
Delgado and Santos believe biofuels targets must be dropped as they are too costly and “distort the agricultural and energy markets”. Furthermore, they argue that freer trade is needed to improve efficiency and ensure food security.
To conclude, the authors suggest that “a sustained increase in international assistance” should be agreed upon to “alleviate the impact of high food prices in poor countries in the short term” and “increase productivity in those regions in the longer term”.