A UK Government report analysing the price spikes for agricultural commodities in 2007/08, concludes that these were exacerbated by poorly performing markets. Uncertainties surrounding projected global stocks and the size of 2008 crop harvests combined with increasing energy prices and a weak US dollar, pushed up the price of wheat, maize, rice and other agricultural commodities in 2007 and 2008. The price spikes had a significant effect on the poorest households in the developing world, triggering an increase in the number of hungry people from 800 million to 1.02 billion.

Whilst many have argued that such price spikes suggest a need for market intervention to protect consumers against price volatility, the authors reach quite different conclusions. They argue that measures such as market subsidies, export bans and import restrictions masked market signals for an increase in grain supply and slowed the response of producers to increases in demand. This, together with the uncertainties highlighted above, led to a short-run lag in supply and the subsequent price spikes.

Authors advocate a further opening up of the international agricultural market...

To counter this effect, the authors advocate a further opening up of the international agricultural market and specifically, for the EU to “phase out agricultural subsidies such as Pillar 1 of the CAP (namely market price support and direct payments)”. The report recognises that such changes should not come at a disproportionate cost to the environment but provides no recommendations on the measures needed to support marginal farming systems that are key to the provision of environmental public goods through agriculture.

The full report is entitled “The 2007/08 Agricultural Price Spikes: Causes and Policy Implications” is written by the Global Food Markets Group (a group of officials drawn from across Whitehall).