Social Europe

  • EU Forward Project
  • YouTube
  • Podcast
  • Books
  • Newsletter
  • Membership

The price increases that matter for the poor

Jayati Ghosh 18th January 2022

Rich-country governments are not adequately addressing the causes of food-price inflation—the world’s poor continue to suffer as a result.

food prices,inflation
Dependent on the actions of others—a poor family in rural Uttar Pradesh (RM Nunes / shutterstock.com)

The question of how best to control inflation is back on the economic-policy agenda and opinion is divided about how to address it. The mainstream view emphasises the need for tighter monetary policies and regards higher interest rates and reduced liquidity provision as justified, even if they dampen the fragile economic recovery under way in many countries. Others argue that today’s inflation is transitory, reflecting temporary supply bottlenecks and labour-market shifts, and will soon correct itself.

In rich countries, policy-makers still rely mainly on macroeconomic tools to tackle inflation. But one set of price increases is different from the others—food-price inflation. Not only does this phenomenon have a much greater direct impact on people’s lives, especially in developing economies; it also reflects more complex causes and addressing it effectively requires a completely different set of strategies. Unfortunately, governments are not discussing them sufficiently.

Deeply troubling

This neglect is deeply troubling. At the end of 2021, the United Nations Food and Agriculture Organization’s (FAO) food-price index was at its highest in a decade and close to its previous peak of June 2011, when many were warning of a global food crisis. Moreover, last year’s increase was sudden: from 2015 to 2020, food prices had been relatively low and stable but they soared by an average of 28 per cent in 2021.

Much of this surge was driven by cereals, with maize and wheat prices increasing by 44 and 31 per cent respectively. But prices of other food items also shot up: prices for vegetable oil hit a record high during the year, sugar was up by 38 per cent and price increases for meat and dairy products, though lower, were still in double digits.

Food-price inflation currently exceeds the increase in the overall price index, and is even more alarming given the significant decline in wage incomes during the pandemic—especially in low- and middle-income countries. This lethal combination of more expensive food and lower incomes is fuelling catastrophic increases in hunger and malnutrition.

Many reasons

There are many possible reasons for the spike in food prices. Some are systemic. Supply-chain problems—especially regarding transport—have been a major factor driving price increases for a wide range of commodities. Thus grain prices rose rapidly in 2021, despite record global output of nearly 2.8 billion tons.

Energy prices are also important in determining the cost of producing and transporting food. The large increase in oil prices in 2021 obviously affected the food prices faced by consumers.

In addition, more frequent extreme weather events make crop output more volatile and reduce yields. Some have argued that prices of agricultural commodities as disparate as Brazilian coffee, Belgian potatoes and Canadian yellow peas (widely used by the food industry to produce plant-based meat substitutes) rose sharply last year after weather events induced by climate change undermined output.

In March 2021, the FAO warned that increasingly frequent climate-related disasters were affecting agricultural supplies. Droughts are the single greatest threat, accounting for more than one-third of crop and livestock losses in low- and lower-middle-income countries. But floods, storms, pests, diseases and wildfires have also become more intense and widespread, as was evident last year.

We can expect much more climate-related pressure on food production in the coming years, with developing regions in Asia and Africa likely to be hit hardest. The threats to food production from climate risk underscore the need for greater international co-operation to tackle global warming and its consequences. Sadly, such collaboration seems unlikely.

Direct result

But some of the other factors contributing to food price increases are the direct result of policy and regulatory changes. These include the significant increase in stockpiling by governments and consumers, driven by fears that new waves of the pandemic will put further pressure on food supplies. The expectation of future food price increases then becomes self-fulfilling, owing to higher current demand.

Last November, the FAO estimated that the global food-import bill in 2021 would be the highest ever, at more than $1.75 trillion—a 14 per cent increase from 2020 and 12 per cent higher than the FAO had forecast just a few months earlier. This is bad news for lower-income economies, which may have more pressing food-import requirements than other countries but could be squeezed out of global markets because of increased demand.

The other important factor is financial speculation in food markets, which has recently experienced a revival. Food commodities became an asset class after financial deregulation in the United States in the early 2000s and there is significant evidence that this played a major role in the destabilising food-price volatility of 2007-09. In recent years, these commodities had become less attractive to investors but that changed during the pandemic.

Despite high volatility, long positions in major food commodity markets were significant and positive for most of 2021, suggesting that financial investors were expecting prices to increase. The volume of such investments grew substantially last year, enabled by persistent regulatory loopholes and the availability of cheap credit to financial institutions.

Unlike some of the more systemic forces affecting food supply and prices in the medium term, policy-makers could easily address the issues of stockpiling and speculation. But that requires governments to accept that these are problems and to muster the will to address them. Until they do, food-price inflation will continue to hit the world’s poor the hardest.

Republication forbidden—copyright Project Syndicate 2022, ‘The price increases that matter for the poor’

Jayati Ghosh
Jayati Ghosh

Jayati Ghosh, professor of economics at the University of Massachusetts Amherst, is a member of the Club of Rome’s Transformational Economics Commission and co-chair of the Independent Commission for the Reform of International Corporate Taxation.

Harvard University Press Advertisement

Social Europe Ad - Promoting European social policies

We need your help.

Support Social Europe for less than €5 per month and help keep our content freely accessible to everyone. Your support empowers independent publishing and drives the conversations that matter. Thank you very much!

Social Europe Membership

Click here to become a member

Most Recent Articles

u421983ae 3b0caff337bf 0 Europe’s Euro Ambition: A Risky Bid for “Exorbitant Privilege”Peter Bofinger
u4219834676b2eb11 1 Trump’s Attacks on Academia: Is the U.S. University System Itself to Blame?Bo Rothstein
u4219834677aa07d271bc7 2 Shaping the Future of Digital Work: A Bold Proposal for Platform Worker RightsValerio De Stefano
u421983462ef5c965ea38 0 Europe Must Adapt to Its Ageing WorkforceFranz Eiffe and Karel Fric
u42198346789a3f266f5e8 1 Poland’s Polarised Election Signals a Wider Crisis for Liberal DemocracyCatherine De Vries

Most Popular Articles

startupsgovernment e1744799195663 Governments Are Not StartupsMariana Mazzucato
u421986cbef 2549 4e0c b6c4 b5bb01362b52 0 American SuicideJoschka Fischer
u42198346769d6584 1580 41fe 8c7d 3b9398aa5ec5 1 Why Trump Keeps Winning: The Truth No One AdmitsBo Rothstein
u421983467 a350a084 b098 4970 9834 739dc11b73a5 1 America Is About to Become the Next BrexitJ Bradford DeLong
u4219834676ba1b3a2 b4e1 4c79 960b 6770c60533fa 1 The End of the ‘West’ and Europe’s FutureGuillaume Duval
u421983462e c2ec 4dd2 90a4 b9cfb6856465 1 The Transatlantic Alliance Is Dying—What Comes Next for Europe?Frank Hoffer
u421983467 2a24 4c75 9482 03c99ea44770 3 Trump’s Trade War Tears North America Apart – Could Canada and Mexico Turn to Europe?Malcolm Fairbrother
u4219834676e2a479 85e9 435a bf3f 59c90bfe6225 3 Why Good Business Leaders Tune Out the Trump Noise and Stay FocusedStefan Stern
u42198346 4ba7 b898 27a9d72779f7 1 Confronting the Pandemic’s Toxic Political LegacyJan-Werner Müller
u4219834676574c9 df78 4d38 939b 929d7aea0c20 2 The End of Progess? The Dire Consequences of Trump’s ReturnJoseph Stiglitz

Foundation for European Progressive Studies Advertisement

Spring Issues

The Spring issue of The Progressive Post is out!


Since President Trump’s inauguration, the US – hitherto the cornerstone of Western security – is destabilising the world order it helped to build. The US security umbrella is apparently closing on Europe, Ukraine finds itself less and less protected, and the traditional defender of free trade is now shutting the door to foreign goods, sending stock markets on a rollercoaster. How will the European Union respond to this dramatic landscape change? .


Among this issue’s highlights, we discuss European defence strategies, assess how the US president's recent announcements will impact international trade and explore the risks  and opportunities that algorithms pose for workers.


READ THE MAGAZINE

Hans Böckler Stiftung Advertisement

WSI Report

WSI Minimum Wage Report 2025

The trend towards significant nominal minimum wage increases is continuing this year. In view of falling inflation rates, this translates into a sizeable increase in purchasing power for minimum wage earners in most European countries. The background to this is the implementation of the European Minimum Wage Directive, which has led to a reorientation of minimum wage policy in many countries and is thus boosting the dynamics of minimum wages. Most EU countries are now following the reference values for adequate minimum wages enshrined in the directive, which are 60% of the median wage or 50 % of the average wage. However, for Germany, a structural increase is still necessary to make progress towards an adequate minimum wage.

DOWNLOAD HERE

S&D Group in the European Parliament advertisement

Cohesion Policy

S&D Position Paper on Cohesion Policy post-2027: a resilient future for European territorial equity”,

Cohesion Policy aims to promote harmonious development and reduce economic, social and territorial disparities between the regions of the Union, and the backwardness of the least favoured regions with a particular focus on rural areas, areas affected by industrial transition and regions suffering from severe and permanent natural or demographic handicaps, such as outermost regions, regions with very low population density, islands, cross-border and mountain regions.

READ THE FULL POSITION PAPER HERE

ETUI advertisement

HESA Magazine Cover

What kind of impact is artificial intelligence (AI) having, or likely to have, on the way we work and the conditions we work under? Discover the latest issue of HesaMag, the ETUI’s health and safety magazine, which considers this question from many angles.

DOWNLOAD HERE

Eurofound advertisement

Ageing workforce
How are minimum wage levels changing in Europe?

In a new Eurofound Talks podcast episode, host Mary McCaughey speaks with Eurofound expert Carlos Vacas Soriano about recent changes to minimum wages in Europe and their implications.

Listeners can delve into the intricacies of Europe's minimum wage dynamics and the driving factors behind these shifts. The conversation also highlights the broader effects of minimum wage changes on income inequality and gender equality.

Listen to the episode for free. Also make sure to subscribe to Eurofound Talks so you don’t miss an episode!

LISTEN NOW

Social Europe

Our Mission

Team

Article Submission

Advertisements

Membership

Social Europe Archives

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Miscellaneous

RSS Feed

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641