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Why did global food prices rise?

Summary: In the last 25 years, global food prices have been going downwards. This is thanks to the increasing productivity and output of the farm sector worldwide. However, in 2007 prices went up dramatically. There are two main explanations to this. The first is an increased demand for food in rapidly developing nations such as China and India. Meat in particular has contributed to the rising prices as farmers have to feed their animals an extensive amount of grain in order to keep up with the meat production. Second, there is the issue of bio-fuel subsidies. As both the European Union and the United States have adopted policies on the production of ethanol and bio-fuel to combat the problem of global warming, they are now giving subsidies to farmers to promote increased production. The subsidies have resulted in a larger production than what is needed for bio-fuel production, and thus a reduced number of other crops not subsidized for bio-fuel production. Third, what is unfortunate in this situation is that high tariffs are shutting out producers of alternative products that can be turned into bio-fuels, most notable sugar cane, from the U.S. and EU. One of the most notably sugar cane producers (Brazil) confronts import tariffs of about 25% in the U.S. and 50% in the EU. These import tariffs raise the price of sugar and makes it uncompetitive with corn and soybeans thus breaking the chance of converting sugar into biofuels and ethanol. It is an unfortunate situation because sugar is seen as a more environmental friendly raw material for bio-fuels seeing that the fiber removed from the cane can make ethanol. There are plans to increase production of bio fuels in the U.S. and EU however, neither political entity wants to reduce tariff barriers on sugar cane or remove subsidies of farmers that produce soy and corn for bio-fuels. Report: 1/ If the government policies promote the production of ethanol, there will be many benefiters. First, of courses, they could be ethanol sellers. In addition, ethanol is produced out of corn, so indirect marketing for corn farmers that will get more demand out of policies that promote ethanol. Hence, corn producers could benefit because they get subsidies and get a free way of marketing from the government. Moreover, if farmers get subsidies from the government they can lower their price. Then, the production to produce ethanol becomes cheaper thus making ethanol cheaper. Businesses that use ethanol will have a cheaper price, reducing costs and increasing profits. Furthermore, as to be seen in the direction of global warming, you can say

that using ethanol is better. Therefore, it could be good news for people who care about the environment. Besides, in a democratic society, when going green the government is trying to let you know that he cares about the world and he wants to make it better. It is a win win situation because there are no people in our opinion that are opposed in going green, but they are a lot of followers and possible followers that support an environmental friendly world. If the policies place tariff barriers on imports of sugar cane, the benefiter will be government who will get all the money out of these tariffs. Because of these policies, profit goes dramatically down when talking about a 25 to 50% import tariff in countries producing sugar for a living. 2/ One estimate suggests that if food prices rise by one third, they will reduce living standards in rich countries by about 3 percent, but in very poor ones by about 20 percent. According to the International Food Policy Research Institute, unless policies change, cereal prices will rise by 10 to 20 percent by 2015, and the expansion of bio-fuel production could reduce calorie intake by 2 to 8 percent by 2020 in many of the worlds poorest nations. This potential problem is considerable. There are some solutions that rich countries should and should not do about it. They should not give any subsidies to the bio-fuel corn farmers. They should decrease import tariffs so that it can be cheaper for countries that produce sugar (and so they can make bio-fuel out of sugar) thus increasing the amount of sugar that countries can export. They also should develop new ideas in how they can attack environmental changes through costeffective ways. 3/ Back to the giving subsidies to ethanol producers that was discussed in the first two paragraphs. When the government started to subsidy farmers who grow crops, they could turn corns and soybeans into bio-fuels. Then, more farmers will plant crops, because of the subsidies from the government. It is also very good for the environment. However, this policy also has a negative side. For example, when more farmers were planting crops, there was a dramatic effect on the demand for corn and soybeans. It increased very fast that in 2007 the U.S. was responsible for half the global increase for the demand on crops. When this happened, the high tariffs were shutting out producers of the product sugar cane. Therefore, they could compete with the other products because the prices were so high. That is very unfortunate because sugar cane is a friendlier environment material than crops and soybeans. In my opinion, on balance, the best policy is to reduce the high tariffs on the other products, because the sugar cane is even more environment friendly. It is not what it is all about, reducing the global warming effect. Therefore, I think they should drop the high tariffs and introduce the sugar cane.