Rising Food Prices: Consequences and Urgent Action Required
Since the year 2000, food prices have risen by 2.6% on average every year (Amadeo, 2020). There are many reasons behind this crisis, and few solutions to tackle it. Higher food prices have imposed undeniable hardships on the poorest consumers and have contributed to pushing them further behind the poverty line. It is urgent that action be taken as soon as possible, otherwise this crisis will continue to become more burdensome and trivial as global population rises.
The Reasons Behind the Increase in Food Prices
Food prices have sky-rocketed due to the pandemic, but even before that one could observe this trend. Some of the prime reasons include: High oil prices, climate change, and a constantly growing global population. The increase in oil prices has made logistics of food items difficult and expensive. A by-product of crude oil which is used in fertilizers is also low in supply causing a decrease in crop yield. To tackle this issue there has been a shift towards usage of biofuels which causes resources and land to be reallocated from the agriculture sector to the production of biofuels. But this has also decreased crop yield and has left poor farmers worse off.
Extreme weather in Brazil contributed a great deal to deficits in sugar, maize and soybean worldwide. Floods and heavy rainfall in Australia and South Asia have led to damaged wheat crops, rice crops and sugar harvests. Moreover, a severe drought in China could halt the harvest of wheat crop. To make things worse, Covid19 led to a massive reduction in production due to gaps in supply chains, lack of manpower (since many laborers have suffered at the hands of the virus), and hoarding carried out by the rich despite the government regulating against it.
Consequences of Rising Food Prices
The people living below poverty line are the most affected population across the globe. An increase in food prices reduces their purchasing power for other commodities therefore it comes difficult for them to afford basic survival necessities such as rent for shelter, warm cloths, and medicines, among others. Lower income countries do not compensate the poor for this loss, nor do they have social protection policies in place to care for them. The impacts of rising food prices are alarming since incomes and food consumption have fallen by more than 25% and 20% respectively.
In emerging economies like India and China, demand for food ends up not being met, both due to high import costs and low supply. In the long run, this would slow down the economic growth of the country as well. Similarly, in low-income countries the pressure to take loans in order to afford food imports increases, which in turn increases their fiscal deficit and results rise in inflation. In many cases, prolonged food crisis can even lead to stagflation.
Policy Responses to Rising Food Prices
De Janvry and Sadoulet (2008) have highlighted that policies in favor of increasing access to land in order to improve productivity, output, and incomes of poor farmers is one of the most appropriate interventions, especially in poor countries. An increase in access to improved seeds and fertilizers, credit to purchase inputs, and the availability of technical assistance should be essential components of the implemented policy. This would help increase domestic production of food commodities and help relieve burden on the country's imports and global food aid providers such as the World Food Program.
On a macro-level, reducing import tariffs on food commodities and increasing tax on export of them, as well as setting price controls could help solve a domestic food crisis. Furthermore, improved infrastructure of roads and warehouses could help reduce transportation and storage costs, thus making food more affordable. On a micro-level, direct support to consumers can be provided. Cash transfers may be provided in countries where food markets work well and the main obstacle facing households is lack of income. Food access-based approaches, such as food stamps and restricted cash-transfers, can be implemented for countries facing a shortage of food supply, which is also an affective policy to prevent food hoarding during the pandemic.
Policies that initiate public investments in infrastructure and agricultural research need to be implemented. They would provide support to institutions giving small farmers access to resources, finance, and informative assistance. These research investments may also lead to production of better seeds and therefore larger yields through the study of biotech and genetic engineering. Policies supporting Urban Farming can also be introduced as an estimated one- quarter of people suffering from malnutrition live in urban settings, such a policy would help increase their endowments and it could even help them become suppliers which would boost the overall country's supply of food.
In the long run, all countries should implement policies that help against climate change. There need to be policies that develop institutes of education to increase literacy, thereby producing more jobs and people that can help the government during food shocks. Furthermore, policies that support family planning are crucial, households with larger families are usually the ones suffering most from hunger and poverty when food prices begin to rise, it is unrealistic to expect governments to provide for so many mouths when a demand larger than supply can be prevented.
Selecting the Appropriate Response
The decision of policy interventions should be based on the following factors:
1. Harmony with existing cash transfer and safety net programs
2. Assurance that the policies will not deter production in anyway
3. Future price developments
References
Amadeo, K. (2020, August 30). Why food prices are rising, recent trends, and 2019 forcast. Retrieved from The Balance: https://www.thebalance.com/why-are-food-prices-rising- causes-of-food-price-inflation-3306099
Bureau, P. R. (2011, April 8). Rising global food prices threaten to increase poverty. Retrieved from PRB: https://www.prb.org/rising-global-food-prices/
De Janvry, A., & Sadoulet, E. (2010). Agricultural growth and poverty reduction: Additional evidence. The World Bank Research Observer, 25(1), 1-20.
FAO. (2008). National policy responses to high food prices: Context and perspectives. Economic and Social Percpectives.
Lustig, N. (2012). Rising food prices and children's welfare. Social and Economic Policy Working Briefs.
ODI. (2008). Rising food prices: A global food crisis. Retrieved from ODI.
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