Brussels, 02/06/2008 (Agence Europe) - At their meeting in Luxembourg on Tuesday 3 June 2008, EU finance ministers will discuss the main drivers in the global rise in food prices and possible policy approaches to this phenomenon, which may last into the long term. Whilst commodity prices rises have not been uniform around the world, the increased have been broad-based (including oil, farm products and some metals), explains a document prepared by the EFC (Economic and Financial Committee) and the EPC (Economic Policy Committee) describing policy responses.
After thirty years of falling global food prices in real terms, this trend has been dramatically reversed since 2006 with a surge in prices for agricultural products, although despite rapid increases, today's food prices are still, in real terms, lower on average than they were in the 1980s, for example. During the first half of 2007, wheat prices in Europe rose by about 80%, butter by almost 59% and poultry by 30%. 'Between September 2007 and March 2008, the contribution of food price inflation to euro area headline inflation increased from 0.4 percentage points to 1.0 percentage point,' explains the document submitted to the ministers. Processed food price inflation jumped from 1.2% to 8.2% between July 2007 and March 2008, whilst unprocessed food price inflation increased from 2.1% in September 2007 to 3.8% in March 2008. The inflationary impact of food price increases has varied significantly across member states depending on country-specific conditions like the share of food in the consumer price index and the degree of competition in retail markets. Despite the recent fall in wholesale prices for some commodities, such as wheat and certain dairy products, the agricultural prices are still tight and the risk of further price increases remains, explain the EPC and EFC.
An important structural determinant for tighter markets has been increasing global demand stemming primarily from income increases in emerging economies, higher oil and energy prices and the production of biofuel) along with temporary factors like low global stocks, export restrictions and taxes levied by big farm producing countries and the growing share of raw materials and commodities markets in investment portfolios, both of which explain the inflationary hikes. The report authors argue that further and deeper analysis of the individual drivers of agricultural commodity price increases is needed, including the future effects of climate change on farm production. Looking ahead, the most likely scenario is that global demographic trends combined with rising incomes and changing food consumption patterns, notably the emerging markets, and increasing biofuel production, will continue to increase demand for farm commodities.
Several short-term steps have already been taken in the Common Agricultural Policy (CAP) to mitigate the effects of the price increases, including the suspension of import duties on cereals and, for 2008, the obligation to set aside land, the decision to increase milk quotas and the sale of intervention stocks. The document argues that it is also important to note the possible distributional effects of increasing food prices. A number of member states have envisaged short-term measures to cushion the temporary impact of the recent commodity price developments for low income households. to avoid second round effects on wages and prices and respect the guidelines set out by Eurogroup (the committee of eurozone finance ministers) at their meeting in Manchester (to avoid tax distortion, see EUROPE 9025), member states should only make short-term, targetted, measures.
At international level, the EU should promote a stable, global macroeconomic environment and foster coordination with international partners to find consistent responses to global challenges, explain the EPC and EFC, calling for: promoting of sustainable production of biofuels at international level, for example by encouraging the adoption of sustainability criteria and tackling climate change; continuing to strive for the successful conclusion of an ambitious, balanced and global agreement on the Doha Round (at the World Trade Organisation) and promote a better coordinated international response to food price escalation exacerbated, for example, by export restrictions; and working with the international community to provide assistance to the most affected countries and, in the longer term, support for action aimed at reducing imbalances between supply and demand for food in the least developed nations. (A.B.)