January 24, 1996

Recent High Grain Prices and Low Supplies Do Not Sigal a Long-Term Trend

WASHINGTON, D.C., January 24, 1996--The recent sharp rise in grain prices and drop in world grain supplies have sparked a lively debate about global food security. Some analysts say this experience portends a long-term trend of declining food stocks and increasing prices that threatens food security. Others believe that the fall in grain supplies is a mere blip on the screen. All agree that investments in agricultural research are critical to meeting world food needs while reducing poverty and protecting the environment.

The recent price increases do not necessarily put the world on a slippery slope toward declining food supplies and rising grain prices. With normal weather, prices should fall this year as grain production increases faster than consumption. Farmers are increasing plantings, consumers are reducing purchases, and governments are taking steps to shore up food supplies. Grain traders believe that these price increases are relatively short term, because futures prices have already moved toward pre-1995 levels.

However, bad weather this year could send prices skyrocketing, because world grain stocks are so low. Low stocks mean less of a buffer against price changes.

Any increase in food prices hits poor countries the hardest. Poor people spend more of their income on food, so when prices go up, they suffer most. Policies need to be developed to protect poor people from changing food prices.

The way to safeguard food security is to invest in agricultural development. In the long term, the decisions made by governments, farmers, consumers, and international agencies will determine whether our recent experience is a blip on the screen or the beginning of a long-term trend. If governments invest in agricultural research and follow proper economic policies, global grain production will keep up with demand and prices will continue the downward trend of the last 50 years.

Details are available in 2020 Vision Brief 30, "Rising Food Prices and Falling Grain Stocks: Short-Run Blips or New Trends?"