The World Food Crisis: What is to Be Done?

The Economist's answer:

Last year wheat prices rose 77% and rice 16% (see chart 1). These were some of the sharpest rises in food prices ever. But this year the speed of change has accelerated. Since January, rice prices have soared 141%; the price of one variety of wheat shot up 25% in a day. Some 40km outside Abidjan, Mariam Kone, who grows sweet potatoes, okra and maize but feeds her family on imported rice, laments: “Rice is very expensive, but we don't know why.”

The prices mainly reflect changes in demand—not problems of supply, such as harvest failure. The changes include the gentle upward pressure from people in China and India eating more grain and meat as they grow rich and the sudden, voracious appetites of western biofuels programmes, which convert cereals into fuel. This year the share of the maize (corn) crop going into ethanol in America has risen and the European Union is implementing its own biofuels targets. To make matters worse, more febrile behaviour seems to be influencing markets: export quotas by large grain producers, rumours of panic-buying by grain importers, money from hedge funds looking for new markets.

Such shifts have not been matched by comparable changes on the farm. This is partly because they cannot be: farmers always take a while to respond. It is also because governments have softened the impact of price rises on domestic markets, muffling the signals that would otherwise have encouraged farmers to grow more food.

And over at Crooked Timber, John Quiggin chimes in:

A second important point is the impact of demand from the biofuel sector, particularly for corn in the US. The idea of making biofuels from food crops was always problematic and the subsidy regime in the US makes it more so. The current food crisis should make subsidies for food-based biofuels politically and economically untenable, pushing the industry away from this easy short term solution and in the direction of sources such as switch grass, grown on marginal or non-arable land.