Columbia International Affairs Online: Working Papers

CIAO DATE: 03/2009

Thought for Food: The Challenges of Coping with Soaring Food Prices

Nora Lustig

November 2008

Center for Global Development


World food commodities prices increased 130 percent from January 2002 to July 2008. Individual agricultural commodities show even more pronounced increases: corn, wheat, rice and soybeans rose by 190, 162, 318 and 246 percent, respectively. Since July, food commodities prices began to fall. While this decline comes as a relief, prices are likely to stay high in the foreseeable future. Available evidence suggests that the decline in living standards of net consumers caused by higher food prices outweighs the benefits accruing to poor net sellers in the majority of countries that have been analyzed so far. The time to implement measures to help the poor net consumers cope with higher food prices is now. However, too many developing countries lack the instruments, administrative capacity and fiscal space to implement safety nets fast enough and in the required scale. This is one of the most pressing policy challenges that we face. For the poor who are net sellers, governments should seize the opportunity to convert the short-run windfall into longer-term gains. Multilateral financial institutions can play a key role in providing financial resources to countries facing negative terms of trade shocks, technical assistance in the design of safety nets and resources to add fiscal space to countries to fund safety net programs. International organizations can also help countries design the appropriate macroeconomic policy response. This will call for greater flexibility in the menu of policy options traditionally deployed by the Bretton Woods institutions.