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In 2007, prices for many staple foods reached record levels. The price of corn in late 2007 was 50% higher than 12 months previously. The price of wheat was double. Global food reserves are at their lowest in 25 years and, as a result, world food supply is vulnerable to an international crisis or natural disaster.
Food security has emerged as a major risk, marked by both local and global consequences, trade-offs between different mitigation priorities and a disproportionate impact on poorer communities.
Concerns about sustainable food security have spread to developed countries. Embedded in a web of other global risks, there is considerable uncertainty as to whether food insecurity in 2007 is the result of short-term conditions which have existed in various times throughout history, or whether a more fundamental change is taking place, with a range of underlying trends bringing food from the sidelines to the centre of the global risk discussion in years to come.
What Is Food Security?
According to the Food and Agriculture Organization (FAO), food security is achieved when all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life. Food security, similar to energy security, is not only about avoiding physical disruptions to supply, but also about ensuring supply at a price which allows economic activity and wellbeing to flourish.
Impacts Are Global and Varied
In the past, food security generally concerned the least developed countries, particularly those in conflict and those facing uncertain weather patterns. But, more recently, concerns about sustainable food security have spread to developed countries which have not generally considered themselves exposed to food insecurity. For example, the United Kingdom has historically relied on the depth of international markets to ensure food supplies at a reasonable price, but this model may be put under stress in the future. In 2007, food and drink prices rose at their fastest rate in 14 years, at 4.7%. In the US, food prices were up 4.4% year-over-year at the end of 2007 - double the rate of non-food, non-energy inflation - partially due to increased acreage devoted to corn to make ethanol.
China and India are also exposed to pressures on global food security, and their domestic experiences may have global economic consequences. In China, average incomes have barely risen while food prices have soared: by 17.6% overall, 70% for pork products, 30% for vegetables and 34% for cooking oil. Combined with the sharply rising dollar price of oil, high food prices in China could increase global inflation.
Beyond the potential economic consequences of rising food prices is the well-established relationship between food prices and political stability. In 2007, surging prices of basic foods caused domestic unrest in a number of different countries. In March, thousands of Mexicans demonstrated against the four-fold increase in the price of flat corn. In September, Italians organized a one-day strike against rising pasta prices. In October, in West Bengal (India), food riots erupted as a result of disputes over food rationing.
The Drivers: Population, Biofuels and Climate Change
Global population and changes in lifestyle
The Result: Uncertainty
The consequences of all these trends for perpetuating the escalation of food prices are difficult to predict. Some experts expect higher food prices to be sustained. Others believe that markets will gradually readjust to shortages as higher prices make it profitable again to grow crops for food.
Policy-makers may have to return to thinking about food as a strategic asset and begin to modify food policies. Given the amount of uncertainty, the resilience of the world's food system will be severely tested in the next few years.
"Global Risks 2008" was produced by the World Economic Forum in collaboration with Citigroup, Marsh & McLennan Companies, Swiss Re, the Wharton School Risk Center, and Zurich Financial Services.
This article is excerpted from Global Risks 2008, a World Economic Forum Global Risks Network Report. To obtain a full copy of the report, go to http://www.mmc.com/knowledgecenter/globalRisks.php
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