Rising Food Prices Intensify Food Insecurity in Developing Countries

Recent hikes in oil prices have raised serious concerns in low-income countries, both because of the financial burden of the higher energy import bill and potential constraints on imports of necessities like food and raw materials. Higher oil prices also have sparked energy security concerns worldwide, increasing the demand for biofuel production. The use of feed crops for biofuels, coupled with greater food demand spurred by high income growth in populous countries, such as China and India, has reversed the long-term path of declining price trends for several commodities.

Worldwide agricultural commodity price increases were significant during 2004-06: corn prices rose 54 percent; wheat, 34 percent; soybean oil, 71 percent; and sugar, 75 percent. But this trend accelerated in 2007, due to continued demand for biofuels and drought in major producing countries. Wheat prices have risen more than 35 percent since the 2006 harvest, while corn prices have increased nearly 28 percent. The price of soybean oil has been particularly volatile, due to high demand growth in China, the U.S., and the European Union (EU), as well as lower global stocks.

The Food and Agriculture Organization of the United Nations (FAO) estimated that the high food prices of 2006 increased the food import bill of developing countries by 10 percent over 2005 levels. For 2007, the food import bill for these countries increased at a much higher rate, an estimated 25 percent.

Price Rises Will Have Greatest Impact on Import-Dependent Countries

The 2006 ERS Food Security Assessment report for developing countries projected a slight increase in food availability during the next decade, mainly because of improvements in Asia. This increased availability is projected to lead to a 5-percent drop in the number of food insecure people in the 70 low-income countries included in the ERS analysis. But, with the recent surge in food prices, prospects are not so bright for many of the lowest income countries. Projections of food availability consider both domestic production and food imports. Changes in import capacity have direct implications on the food security of low-income countries where food import dependency has increased because of greater demand stemming from income and population growth, as well as slow gains in domestic production. For highly import-dependent or highly food-insecure countries, any decline in import capacity stemming from rising food prices can have challenging food security implications.

Food Price Hikes in 2006 Offset by Record Crops and Higher Export Revenues

In 2006, higher food and oil prices resulted in an estimated decline in total commercial imports by the 70 developing countries. However, most of the expected impact of higher oil and food prices on food security was offset by favorable weather leading to record or above-average crop production, as well as higher export earnings of some of the low-income countries. Higher prices for copper and aluminum brought significant financial gains to some of the poorest countries, such as Zambia, Tajikistan, Guinea, and Mozambique. Increased construction in China, which accounted for 50 percent of the growth in consumption for copper and aluminum metals, prompted the rise in metal prices, according to an International Monetary Fund (IMF) report.

Strong demand growth for labor in industrial countries and emerging markets also helped offset the impact of food and fuel import price increases in several countries. In Central America, remittances (transfers of money from foreign workers to their home countries) grew to account for 10-20 percent of Gross Domestic Product (GDP) in 2005, supporting growth in consumption. Asia is the largest recipient of remittances, accounting for 45 percent of the world total; IMF estimates that remittances contributed to about 10 percent of GDP in the Philippines and Nepal. Sri Lanka benefited from the economic boom in oil-exporting countries because more than 80 percent of its migrant workers were working in the oil-exporting Gulf States.

But will export prices for less developed countries continue to grow in the medium term, preventing an erosion in terms of trade for low-income countries? The 2006 IMF Outlook report argues that prices of metals will decline because the reserves of metals are more plentiful than oil reserves. The price trend for agricultural raw materials is less predictable because weather-related shocks will continue to create annual price volatility.

Grains and Oilseeds Crucial in Developing Country Diets

Price increases for grains and oilseeds are of particular concern to low-income countries as these commodities constitute a large share of their citizens’ diets. Low-cost grains historically have been a dietary staple in the poorest countries. In low-income Asian countries, grains account for an average of 63 percent of the diet; in North Africa and Commonwealth of Independent States (CIS—11 former Soviet republics), about 60 percent. In Sub-Saharan Africa, the region most vulnerable to food insecurity, grains account for nearly half of the calories consumed. The share of grains in the diet is lowest—about 43 percent—in lower income Latin America. In all regions, the situation varies by country. For example, in Bangladesh, the share is 80 percent, while in Eritrea and Ethiopia, both among the most food-insecure countries in the world, the share is around 70 percent.

The vegetable oil share of diets in low-income countries has risen as higher incomes made processed foods more accessible. For example, in Sub-Saharan Africa, the share of vegetable oil increased from less than 8 percent of the diet in 1980 to 12 percent in more recent years. In lower income Asian and Latin American countries, the share is now roughly 10 percent, up from 5-7 percent in 1980.


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While I do feel compassion for the people affected in the developing countries, some of the food insecurities have less to do with rising commodity prices than they do with exceptionally stupid political policies (hello, Hugo Chavez and Robert Mugabe).