The good news for billions of consumers in Asia is that panic has not (yet) hit rice markets. Stocks are higher than in 2008 and no government has restricted rice exports, so rice prices actually dipped a bit in January and are well below 2008 levels.
The bad news for other poor consumers is that prices for other staple grains are rising sharply, echoing the 2008 spikes. Wheat prices, while not quite back to 2008 levels, are rising rapidly and a new ominous weather report seems to come out regularly—this week, Howard Schneider of The Washington Post reports on a drought in northern China. And, as reported in the Wall Street Journal, where severe weather curbs production or rising costs crimp profits, there is no offsetting benefit for poor farmers.
But in the case of corn (maize), ill-conceived biofuel policies remain the major culprit behind spiking prices. According to Reuters:
“The U.S. government made a surprisingly deep 9 percent cut in its forecast for corn stockpiles on Wednesday, projecting the tightest supply-to-use ratio since the Great Depression as more of the feedgrain is used to make ethanol. Corn prices in Chicago jumped to their highest level since July 2008 following the Agriculture Department report, which threatened to rekindle heated debate about using crops for fuel as food prices soar and big importers scramble to build up stocks in order to head off civic unrest.”
Apparently, the decision by the U.S. Environmental Protection Agency (EPA) last year to increase the allowable level for blending ethanol with gasoline—from 10 percent to 15 percent—was a major factor in driving demand for ethanol—and corn prices—up sharply. It didn’t help that at the end of the year, Congress renewed both the tariff on imports of ethanol, and the subsidy for blenders.’ My earlier paper and related blog on the role of biofuels in the 2008 price spikes explains why this policy is crazy.
Vij Ramachandran and I offer some other ideas for short-to-medium term policies that the U.S. and other rich-country governments could adopt to help mitigate another food price crisis, especially if the weather continues to impede production. In developing countries, as my colleague Amanda Glassman points out in a comment on that blog, cash transfers can be a useful insurance mechanisms for helping the poor cope with unexpected shocks, such as this. And certainly targeted cash transfers are preferable to far costlier and more distorting policies, such as export bans or general food subsidies, that, as visiting fellow Nora Lustig pointed out, push the adjustment off on international markets and further exacerbate global price pressures.