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Overseas Development Institute
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The spike in international prices of cereals that took place in 2007/08 can be seen as the outcome of many factors operating over the medium, short and very short term. There is general agreement on most of the causes, including: poor harvests, low cereals stocks, rising oil price, generalised inflation, export bans and restrictions, restocking in tight markets, reduced import tariffs, and depreciation of US dollar. There is less agreement on three other factors: first, the influence of rising demand from the booming economies of Asia; second, the diversion of maize into ethanol production in the US; and, third, the role of speculation in futures markets for maize and wheat. Understanding the causes of the price spike matters if the options for either preventing or mitigating future such events are to be assessed. This paper summarises what is known about the causes of the price spike, sets out three areas of controversy and suggests the policy implications that follow.
