Extract

Food prices have been rising sharply the world over since July 2010. Although food prices have been increasing since 2000, they increased at a faster pace between 2006 and 2007-08 when prices of major cereals surged very rapidly. After the peak in prices in 2008, good harvests helped the prices to fall back. However, adverse weather conditions in several food exporting countries affected supplies, and there was another food price crisis in 2010. These spikes have been due to a combination of both short-term (such as droughts and trade restrictions) and long-term (such as declining productivity and inadequate investments in infrastructure) factors. Another factor is the deep integration between agricultural commodity markets and other markets in the world. For instance, rising crude oil prices have led to an increase in agriculture prices in two ways: rising inputs costs (such as oil-based fertilizers and transportation), and increased demand for agricultural crops for alternate energy sources such as biofuels. Many analysts claim that speculation and hoarding further fuelled the price rise. Recent studies (Hernandez and Torero, 2010; Mayer, 2012; Nissanke, 2012) point towards the role of speculators in exaggerating the rally in food prices, over and above that explained by the fundamentals of demand and supply.