BUSINESS ECONOMIC COURSEWORK.

Business Economic Coursework.

Business Economic Coursework.

1. The main factors that have caused food prices to rise significantly in the last few years

The surge in agricultural commodity prices resulted from a combination of structural and temporary factors. Structural factors such as global population growth, rising incomes in emerging economies and the development of new market outlets have contributed to a gradual rise in world demand. Global supply was unable to keep pace due to a slowdown in the growth of food crop grain yields and the characteristics of world agricultural markets which are thin and typically constrained by the seasonality of production. (Hosseini, Hamid S. 2003, 645-89)

Moreover, increasing production costs, due inter alia to rising energy prices, spilled over on agricultural commodity prices. The impact of these structural factors was amplified by large production shortfalls resulting from adverse weather conditions and trade restrictions imposed by several exporting countries. Exchange rate developments, growing speculative activity in the commodity derivative markets and the close relationship between agricultural and other commodity markets, such as the oil market, also affected agricultural commodity price developments. The contribution of these various factors varies between sectors. For example, changes in wheat and rice prices are largely attributable to supply-side factors while maize and soybean markets have been mainly driven by a strong growth in global demand both for meat consumption and for industrial use. (Hosseini, Hamid S. 2003, 645-89)

Consumer food prices normally rise by about 2.5 percent annually, but they increased by 4 percent in 2007, the biggest increase in 17 years. And forecasts for 2008 are pointing to a another rise of 3 percent to 4 percent, USDA said in February.

A key goal of the Bush administration has been to boost supplies of renewable fuels to reduce the country's dependence on foreign energy. But corn prices are rocketing to record highs, which will raise prices for a variety of products as corn is widely used as feed for livestock. Corn for delivery in May rose 15-1/4 cents to $6.07 a bushel at the Chicago Board of Trade Tuesday.

Asked about the food crisis and how it related to biofuels, U.S. Secretary of State Condoleezza Rice said the two were related but there were a host of other issues involved, such as high transportation costs of food. (Hosseini, Hamid S. 2003, 645-89)

2.Explain the impact rising food prices has had on investment in agriculture

Recent price volatility on international markets is putting pressure on global food security. For the 2 billion people who live and work on small farms in developing countries, life has become more precarious. But with the right investments, policies and development programmes in place, smallholder farmers have a huge potential to increase food production, improving their lives and contributing to greater food security for all.

The roots of the recent food security crisis go back almost 30 years, when investment in agriculture started to decline because of the growing perception that agriculture was unprofitable. In 1979, aid to agriculture was 18 per cent of total ...