Why Are Global Food Prices Soaring?

Energy costs, investment in ethanol, bad weather in Australia …

Corn prices are on the rise

The U.N. World Food Program’s executive director told the Los Angeles Times that “a perfect storm” is hitting the world’s hungry, as demand for aid surges while food prices skyrocket. Cost increases are affecting most countries around the globe, with prices for dairy products up 80 percent, cooking oils up 50 percent, and grains up 42 percent from 2006 to 2007. (For more specifics on how prices have changed since 2000, the U.N. Food and Agriculture Organization has a handy chart.) Why are groceries getting so expensive all at once?

Energy prices. The global food system is heavily dependent on petroleum, not just for shipping goods from one location to another but also for production, packaging, and processing. As the price of oil rises—crude oil is currently hovering at around $100 a barrel—so do the costs of planting, harvesting, and delivering food.

High oil prices have also created a secondary problem: The burgeoning interest in biofuels. In 2006, 14 percent of the total corn crop in the United States was converted into ethanol; by 2010, that figure will rise to 30 percent. When the production of corn intended for human or animal consumption decreases, prices go up. Why does this local shift in policy affect food prices around the world? The diversion of American corn into energy has a ripple effect for two reasons: First, the United States is the world’s largest corn exporter, accounting for about 40 percent of global trade, so when corn-as-food production decreases here, costs go up everywhere. Second, when the price of corn increases, farmers in the United States, Europe, and elsewhere who use the crop to feed livestock look for cheaper alternatives, like wheat or sorghum. These alternatives, in turn, become more expensive.

Another factor is the improved standard of living in rapidly developing countries. The demand for foodstuffs like meat and dairy is on the rise in China and India, sending costs skyward not only for those items but for the grain used as cattle feed. Finally, weather deserves a share of the blame. Australia has seen bad droughts six years running, and last year there was major flooding in Argentina. Since both of these countries are major dairy exporters, milk and butter are pricier than they used to be.

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Explainer thanks Brenda Barton of the World Food Program and Brian Halweil of the Worldwatch Institute.