A large increase in crude oil prices stands out among numerous factors to explain most of the jump in food prices over the last decade. Indeed, as we found in a recent World Bank study, oil prices were more important to food prices than several other long-term price drivers, including exchange rates, interest rates and income. This finding has important implications for policy and for governments hoping to mitigate the negative effects of food price swings.
Initially, the post-2004 commodity price increases bore resemblance to the temporary increases of the 1950s (Korean War) and the 1970s (oil crisis). But it is becoming clear that the current situation has a more permanent character. Most commodity prices are now two or three times higher than they were a decade ago. Indeed, nominal prices of energy, fertilizers, and precious metals tripled between the two time periods we compared (1997-2004 and 2005-2007). Metal prices went up by more than 150 percent in that time, and most food prices doubled.