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19 May 2008

Summary of Critical analysis of the causes of the explosion in world agricultural prices

Jacques Berthelot

I – Classification of the causes of the recent explosion in agricultural prices

One can distinguish the causes linked to the increased demand from those linked to a lower supply or higher production costs, knowing that some causes have had short term effects while others correspond to long term trends.

1) – Causes linked to demand

a) The main cause has been the soaring production of biofuels since 2006 which has reduced the volumes of cereals and oilseeds available for direct human consumption and led to the price hike of animal products having consumed feedstuffs.

b) If the increased consumption of food products, notably of animal products and therefore of ’grains’ (cereals and oilseeds), is clearly linked to the rapid rise in the living standard of emerging countries such as China and India, this is a trend which has been going on for many
years and which cannot account for the recent explosion in world agricultural prices.

The world population growth in the long run – from 6.6 billion in 2007 to 9.3 billion in 2050, which will occur only in developing countries (DCs) – cannot be responsible for this explosion. But it suggests the difficulties ahead to satisfy the food needs in 2050, the more so as 854 million human beings are still suffering from chronic under nutrition and more than 2 billion from malnutrition (deficit in proteins, vitamins or trace elements).

c) More recently the massive financial speculation on agricultural commodities (and non agricultural ones, of which oil) linked to the collapse of securities and the dollar depreciation.

d) But also the speculation by traders and consumers expecting the continuation of prices hikes, and governmental imports in countries such as the Philippines in order to discourage the speculation of national traders.

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