Why are food prices rising?

When food suddenly costs more, those who can least afford it get hit hardest. Canadians spend less than ten percent of their income on food. People living in poverty can spend as much as 80 percent. Rising food prices leads to more hunger.

Why are food prices rising?

Anyone who shops knows the cost of food is on the rise. Our grocery bills rise because the prices of key staple are on an upward trend that shows no sign of abating.

When food suddenly costs more, those who can least afford it get hit hardest. On average, Canadians spend less than ten percent of their income on food. However, people living in poverty spend 50 percent and the poorest as much as 75 percent of their income on food. When prices mushroom, these people must do without, and it is women who most frequently eat last and least.

Why is this happening?

  1. The rise in oil prices. Food grown on large-scale corporate farms requires a lot of fuel, because it’s mechanically harvested and processed, then transported over large distances. 
  2.  Crops that once were used for food are now used to make what is known as “biofuel,” primarily ethanol and biodiesel. A full 40 percent of the corn crop in the United States, and a similar percentage in Canada, now ends up in cars instead of stomachs.
  3. Climate change. Droughts, floods and storms have played havoc with harvests over the past few years, and climate scientists predict the problem is only going to get worse.
  4. Some experts feel that the financial crisis that swept the world beginning in 2008 also had an impact on food prices. Investing in the rising price of food seemed to make it a safe bet.
  5. Governments’ response to rising food prices. More than 30 food-exporting countries banned exports in 2008, fearing food shortages at home and the political instability that might follow. Such bans reduce supply to the world market and drive the price for importing countries even higher. Russia did this most recently when wheat prices rose sharply in 2010.

What can be done about it?

  1. Oxfam believes that all donor countries should invest much more of their aid in support of small-scale, resilient and sustainable agriculture, which is less dependent on fossil fuels and has the greatest potential to raise food production. The world’s 500 million small farmers – who feed one third of humanity – work largely without public support for markets, land, finance, infrastructure or technology.
  2. Major food exporters should commit to refrain from restricting exports in times of shortages, because these may undermine the right to food and the long-term prospects of developing countries. The Canadian government has spoken strongly against export restrictions.
  3. Canada, the United States and Europe should stop throwing biofuel on the fire: they should phase out requirements for minimum ethanol content in gasoline or biodiesel in diesel; and reorient any tax breaks or subsidies toward developing technologies that do not use food for fuel.
  4. Countries with major financial centres (United States, UK, Germany, and Canada) should agree to improve transparency in commodity markets and take steps to rein in excessive speculation, such as price limits and position limits, so that commodity futures markets can play their proper role without being hijacked by hot money. Pension funds should consider voluntarily limiting the amount of money they invest in commodity markets.
  5. Governments should better prepare to address food emergencies by sharing information on the actual and forecasted status of food stocks, by providing safety nets to people who cannot produce or buy enough food, and by scaling up community-based, national and regional food reserves.

Governments have an opportunity to act this year. The food crisis is high on the agenda for the 2011 G20 summit, which France will chair and will be held in November. Citizen pressure could encourage Canada to review its policies on biofuels and financial regulation, to fully support emergency reserves and to champion greater investment in smallholder farmers.

 

GROW Fact Sheet: Why are food prices rising?