The four fault lines that define the commodity trade, outlined in Chapter 1, converge in the volatility seen in global foods markets over the past decade. Although in real terms still far below long-term historical averages, recent food prices, having trended higher over that period, constitute a reversal of the generally declining prices that had prevailed since the mid-1970s. The economic consequences for rich and poor countries, not to mention net exporting versus net importing countries, differ markedly. Among the world's poor, evidence suggests problematically high food costs can weigh on educational attainment in the rising generation with long-term negative consequences for economic productivity. Rising prices also present an acute inflationary threat in emerging economies, given that food represents a larger share of household expenditures, which can also weigh on economic growth. Many analysts have argued that severe food cost escalation can contribute to escalating political unrest, which they see as being a contributing factor in the ongoing upheaval in the Middle East and North Africa.

Yet the food market is another sphere in which a misdiagnosis of the problem can worsen it. Although financial market speculation is often cited as the root cause of high or unpredictable food prices, that explanation obscures more than it reveals. Fundamental forces of supply and demand in these markets, compounded by macroeconomic trends (secular trends in the U.S. dollar and a falling real interest rate environment in the G10), domestic price controls, and at times nationalistic trade policy by major exporters, are better supported by the econometric evidence as spurring the volatility. The food markets are an arena in which the structurally opposing interests of net importing and exporting countries can hinder cooperation among trade partners, pitting sovereign states and their national champions against private-sector enterprises and limiting the scope for international agreements that could increase the resiliency of these markets in times of severe market stress.

THE ONSET AND IMPLICATIONS OF THE GLOBAL FOOD CRISIS

Among the most dramatic storylines of the mid-2000s commodities boom was the sizeable leap in the price of food and agricultural products in the world market. “Across the World a Crisis is Unfolding at Alarming Speed,” read an April 2008 headline.