Irregular weather conditions are causing prices of grains such as corn, wheat and soybeans to shoot up. The most vulnerable people in this situation are the poor in developing countries that rely heavily on food imports. Officials of international organizations such as the United Nations and the World Bank, and leaders of the major economies, should strive to reduce market uncertainty.
The U.N. Food and Agriculture Organization announced Aug. 9 that its price index for major foodstuffs in July rose 6 percent from the previous month. The prices had been falling since April but started to rise in July.
The main reason for the price rises is a drought that has hit the United States’ Midwest and hurt the production of corn and soy beans. The region accounts for about 40 percent of the world’s production of these crops. The drought — the most severe the Midwest has experienced in 56 years — has raised concerns about future supplies of those agricultural products. In such a situation, speculative funds tend to flow into markets, causing price increases.
The FAO’s price index increased 23 percent for corn, 19 percent for wheat and 12 percent for sugar in July from the previous month. The futures prices at the Chicago Merchandise Exchange have soared about 40 percent for corn and wheat, and about 30 percent for soybeans in the past two months.
In addition to the drought-related damage, the fact that about 40 percent of corn produced in the U.S. is used for production of biofuel is contributing to raising corn prices. It is reported that the U.S. will review its biofuel strategy. Increasing demand in emerging economies for meat is also causing the prices to rise of grains used for animal feed.
Even if there is a sufficient inventory of grains, bad harvests could lead to speculative moves in markets as well as an unwillingness on the part of sellers to market their grains, causing grain prices to go up. Grain-exporting countries may be tempted to restrict grain exports, causing worries in markets and thus further increasing grain prices.
The FAO warns that the world may face a crisis similar to the one that happened in 2007 and 2008. At that time, several million people became refugees in developing countries. The Group of 20 major economies should utilize the Agricultural Market Information System to correctly monitor trends in grain markets and enhance dialogue among grain-exporting and grain-importing countries and other market stakeholders with the ultimate goal of improving global food security.
Japan should adopt a rational agriculture policy that discourages farmers from abandoning their fields and should take action to persuade people and companies to stop wasting so much food.