The Environmental Food Crisis

Trade policies that limit market access, increase the volatil-

ity of commodity prices, unfairly subsidize developed coun-

try exports and constrain the trade policy flexibility of the

developing world affect the stability and security as well as

overall economic wellbeing of developing countries. A quar-

ter of the world’s governments implemented some export

restrictions in the current period of high prices to ensure

domestic food security. The impacts of these restrictions

varied from panic-buying to the cultivation of smaller areas

due to high input costs and the expectation of low product

prices. These restrictions even increased price volatility of

food products on the world market, thereby decreasing the

food security of other countries (FAO, 2008). Earlier expe-

rience shows that attempts to gain domestic price stability

create global price instability (OECD, 2008; World Bank,

2008). Furthermore, once policies are established to pro-

tect food markets, they are not easily dismantled.

It should also be noted that global food prices are deter-

mined by a small share of food products that are traded

on the global market. The share of cereals traded com-

pared to the volume produced is small and has increased

slightly over the last four decades, from 9% to 13%. Annu-

al fluctuations in world cereal production are in the same

order of magnitude, varying from +9.8% to –3.9% of the

previous year’s production. This implies that supplies to

the world market (the sum of the surplus in the supply

of each region) can be reduced by one-third or increase

two-fold. Demand in the world market does not follow

this trend, however, and probably even moves in the op-

posite direction in case of poor harvests. These yearly

trends describe the risk of discrepancy between supply

and demand on the world food market. For this reason,

with open markets, developing countries are very vulner-

able to fluctuations in global food supply and prices and

temporary protection of their own agricultural markets is

promoted for these countries.

Supplies from food stocks can also buffer shortages on the

world market (FAO, 2008). Stocks of cereals and vegetable

oil have fallen to low levels relative to use, reducing the

buffer against shocks in supply and demand. Stocks are

not expected to be fully replenished over the coming 10