The World Food Crisis: Causes and Implications for Ontario Agriculture

The upheaval in the global food market involving the dramatic increases in crop prices and riots prompted by unaffordable food to many of the world’ s poorest has placed agriculture back in the public eye. Questions are being raised surrounding what has happened, why, and what can be done. This report has provided an overview of the food crisis and its potential impact on agri-food sector in Ontario. The boom in crop prices is primarily related to demand side factors rather than a supply-side shock from a production shortfall that were behind previous price spikes. There have been some supply side shifts: weather-related shortfalls occurred in the last two crop years, especially for wheat, yield increases are falling due to lagging research and development, and some countries implemented export restrictions. However, the primary push upward is due to structural shifts in demand from growing economies and biofuels (which will continue to grow albeit limited to some extent by the rising prices). Speculative activity has likely contributed to the sudden nature of the increase in price and to a bubble at the top of the market, but does not alter the fundamental demand and supply trends that have created the declining stocks. Supply cannot adjust immediately due to the annual nature of crop production, so stock levels will continue to be under pressure and crop prices supported for the next several years. The effect of higher crop prices on food prices depends on the share of the food dollar going to the farmer and the share of disposable income spent on food. These shares are large for poor households in developing countries but small for most Canadian consumers. There is a distinction between crop price and food price in Canada. Consequently, domestic food inflation will not be driven by rising crop prices but rather pushed be energy prices which will drive general price inflation.