What's Driving Food Prices? March 2009 Update

Abstract

In the spring and early summer of 2008, the temperature of the rhetoric in the food-versus-fuel debate was skyrocketing right along with the prices of corn, soybeans and crude oil. Farm Foundation is not about heat or fueling fires. Our mission is to be a catalyst for sound public policy by providing objective information to foster deeper understanding of the complex issues before the food system today. We commissioned Purdue University economists Wallace Tyner, Philip Abbott and Christopher Hurt to provide a comprehensive, objective assessment of the forces driving food prices. Released in July 2008, What’s Driving Food Prices? identified three major drivers of prices—depreciation of the U.S. dollar, changes in production and consumption, and growth in biofuels production. The three economists also reviewed more than two dozen reports and studies in the academic and popular press about commodity prices, biofuels and food prices, summarizing them in light of their own examination of the facts. Today, just eight months later, the landscape is remarkably different. The 2008/2009 crop production was higher than forecast, quieting talk of inadequate supplies. Significant declines have occurred in crude oil, grain and oilseed crop prices. Biofuel production has slowed. The value of the U.S. dollar has appreciated. A global financial crisis and recession now dominate the news. Given this remarkable reversal of conditions, we asked Tyner, Abbott and Hurt to reexamine the drivers of food prices. Their analysis indicates that now, as eight months ago, the answers are not simple. While the level of food prices has dropped, the forces driving those prices remain the same today as in July 2008, as does the need to understand how those forces work and interact. As did the July 2008 report, this update reinforces the fact that food prices are influenced by diverse and multiple factors generated by complex global economic issues. It is the intent of Farm Foundation that the objective information provided in this report will help public and private leaders better understand the functions of these driving forces as they make business and public policy decisions for the future.

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