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Food Prices Are Soaring: 5 Questions for Economist José Cuesta

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Photo Credit: Arne Hoel/World Bank

The numbers are jarring: Global prices for key food staples such as corn and soybean were at an all-time high in July 2012, with corn rising 25 percent and soybeans 17 percent in a single month.

Globally, food prices jumped 7 percent between April and July. In some countries, people now pay more than twice as much for sorghum [1] as they did a year earlier, the latest issue of the World Bank’s Food Price Watch shows.

This is expected to hit certain regions with high food imports, such as the Middle East and much of Africa, especially hard.

We’re looking at a significant price shock, but does that mean we’re headed for a food crisis similar to the one we experienced in 2008? World Bank economist José Cuesta, the author of the quarterly Food Price Watch report, gives his perspective on the situation.

Prospects Weekly: Investors have returned to emerging markets equity and fixed-income mutual funds

Investors have jumped back into emerging-market equity and bond mutual funds, bringing quarterly inflows up to about $40 billion—well above the 7-year average. Unemployment rates are retreating in most countries, but continue to rise from an already elevated level in high-spread Euro Area countries. Increased grain planting area announced in the U.S. suggest that, if normal weather conditions prevail, grain markets are likely to be wellsupplied. However, increased plantings were achieved at the expense of soybeans—which could bring price pressures to edible oil markets.
Investors have returned to emerging markets (EM) equity and fixed-income mutual funds in the first quarter of 2012, although the pace of inflows has decelerated recently. Emerging market bond funds received total inflows of $14.4 billion in inflows during the first quarter, while equity funds posted inflows of $25.6 billion. This follows a very weak second half of 2011 when investors redeemed positions equal to some $9.6 and $17.6 billion in the third and fourth quarters respectively. Despite recent declines, monthly inflows during March exceeded 7-year averages by 10.8 percent for equities and are almost 4 times higher for bonds.
Unemployment rates continue to rise in high-spread high-income European countries, while in developing and other high-income countries they are declining. So far this year the aggregate unemployment rate in high-spread high-income European countries has risen by 1.1 percentage points and now exceeds 15 percent. This contrasts with Germany where the unemployment rate continues to fall and is now well below pre-crisis levels. Elsewhere in Europe unemployment rates are also declining, but only gradually and unemployment remains well above pre-crisis levels. Unemployment is also declining among high-income countries outside Europe, notably in the United States, although there too the unemployment rate is still almost 3.5 percentage points above its pre-crisis average. Among the 27 developing countries reporting data, unemployment inched down to 7.2 percent of the labor force as of February 2012—regaining its pre-2008-crisis level, and significantly below its 20-year average of 8.8 percent.
Global wheat and maize prices remain relatively low, despite lower than expected stocks. Maize and wheat prices are at broadly the same level as two weeks ago, despite sharp fluctuations in the run-up to and following recent U.S. Department of Agriculture (USDA) reports on planting intentions and grain stocks. The reports indicated that U.S. maize and wheat stocks on March 1st were 8 and 16 percent lower than a year ago, well below expectations and earlier estimates. As a result, futures prices jumped 6.6 and 7.9 percent on March 30th regaining the losses incurred earlier in the week in anticipation of a more upbeat outlook. The USDA also reported that US maize and wheat plantings are expected to rise 4 and 3 percent in 2012. As a result, if normal weather conditions prevail, grain markets will likely be well-supplied in 2012/13. However, most of the increased planting area will be at the expense of soybeans—which could put edible oil markets under upward price pressure, given weather-related late plantings in South America, cyclical declines in East Asian palm oil output, and increased demand for biodiesel production.

Download the Prospects Weekly as PDF here.

Rising food prices and East Asia: trends and options

Soaring food prices have suddenly become a major concern for policy makers in East Asia. The price of rice - which provides one third of the region's caloric intake - is a particular worry. Rice prices have been moving higher since around 2004, although this was from very depressed levels in the early years of the decade. Prices surpassed $300 a ton in early 2006 for the first time since the late 1990s, kept moving higher, and then took off at an accelerating pace from late 2007: up 11 percent in the the fourth quarter, then 56 percent in the first quarter of 2008 an

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