By 2007, that figure had increased to 23 percent – 37 per cent if December 2007 is compared with December 2006. Over the last three years, according to the World Bank, global food prices have increased by 83 percent.

While high price events are not unusual in agricultural markets – even if food prices stabilize at 25 per cent above their 2001 level, this would still only bring them to early 1990s levels – the unusual feature of the current situation is that the price spike applies to almost all major food and feed commodities, rather than just a few of them. The move to current price levels has also been unusually sudden.

As recently as 2005, the Outcome Document from the UN World Summit noted the need to ‘address the impact of weak and volatile commodity prices and support the efforts of commodity-dependent countries to restructure, diversify and strengthen the competitiveness of their commodity sectors’.

Less than three years later, corn is at around its highest level in 11 years, rice and Soya are at their highest level in 34 years, and wheat – like crude oil and gold – has recently touched its highest level ever.

This briefing paper focuses on what this important change means for international development. It starts by assessing the drivers of rising prices, noting that while in the short term the pressure is on the demand side, a suite of ‘scarcity issues’ – climate change, water scarcity, energy security, pressure on land – will increasingly affect the supply side over the longer term.

The paper then discusses the implications of higher prices for developing countries, before setting out a brief survey of implications for development policy, focusing in particular on humanitarian assistance, but also touching on increasing supply, helping low income countries to benefit from rising prices, scarcity issues, trade and the question of fair shares.

At present, the main drivers of increasing prices are on the demand side. Historically, demand growth for food has been about 1. 5 per cent each year; now, however, it has risen to 2 per cent, and Goldman Sachs estimate that it will be as high as 2. 6 percent within a decade. The World Bank estimates that food production will need to grow by another 50 per cent by 2030 (and 85 percent for meat) to fulfill projected demand.

A particularly important part of the picture has been rapidly rising income growth, notably in emerging economies such as China and India. Joachim von Braun, Director General of the International Food Policy Research Institute (IFPRI), argues that high income growth accounts for perhaps half of the recent increases in food prices.

As middle classes grow more affluent, food consumption patterns change too – often towards diets richer in meat and dairy products that are much more intensive in terms of both grain and water use.

The role of bio-fuels as a source of demand for grain has also been a significant element of recent food price rises (von Braun estimates 30 per cent of the picture). The US already spends $7 billion a year supporting ethanol. This consumes 20 per cent of America’s corn crop – a figure likely to rise to 32 per cent by 2016.

Looking ahead, the EU has a target for 10 per cent of its transport fuel to come from bio-fuels by 2020, while the US has proposed a target of 36 billion gallons of renewable fuel by 2022.

But there are also supply factors in play. In the shorter term, one issue is that food supply is quite inelastic, i.e. supply responds relatively slowly to increases in demand. IFPRI estimate that aggregate agricultural supply increases by only about 1–2 percent for each 10 per cent increase in price – and by even less when (as now) prices are very volatile.

The problem of reduced exports from important food producers (such as India, Argentina and Kazakhstan) is also problematic, especially when matched by importing countries seeking to purchase larger than normal volumes of food in order to build up stockpiles.

Another shorter term supply-side issue is that some current price volatility is attributable to speculative investors seeking safety in commodity markets from the weak dollar and from falling equity and bond markets – although opinion is divided over how significant a factor this is.

There is also the factor of low inventory stocks, which explains some of the current market volatility. In the short term, food prices look set to ease somewhat, particularly if (as now seems likely) the northern hemisphere enjoys a good wheat crop. But in the longer term, four more fundamental supply-side factors – which might collectively be termed ‘scarcity issues’ – are already starting to make themselves felt, and are likely to become more significant.

First, the costs of agricultural inputs – and especially energy – are rising. Today’s global agricultural system is predicated on the availability of cheap, readily available energy, for use in every part of the value chain: both directly (e.g. cultivation, processing, refrigeration, shipping, distribution) and indirectly (e.g. manufacture of fertilizers, pesticides – the cost of urea, a fertilizer, has almost tripled since 2003). But as noted earlier, oil prices are already at their highest ever level; many analysts expect them to stay relatively high over the medium to long term.

In addition, since food can now be converted into fuel, there is effectively an arbitrage relationship between the two, implying an ongoing linkage between food and fuel prices. Second, water scarcity is likely to become a more pressing issue. Global demand for water has tripled in the last 50 years; 500 million people live in countries chronically short of water, and this number is likely to rise to 4 billion by 2050.

A particular worry is depletion of limited groundwater resources, on which some parts of the world including the US, Egypt, Pakistan, India and China – have been enjoying a ‘free ride’ for the past two or three decades.

Third, there is the issue of land availability. Some commodities analysts argue that whereas historical increases in demand have been met through increasing yields, in future an expansion of acreage will also be required.

However, this will be expensive, given the infrastructure investment involved; there may also be diminishing returns, since much of the best land is already under cultivation. Above all, there is simply increasing competition for what land there is, including food, feed, fibre (e.g. timber, paper), fuel, forest conservation, carbon sequestration and urbanization, on top of high rates of soil loss to erosion and desertification.

The FAO estimates that there is at most 12 per cent more land available that is not already forested or subject to erosion or desertification, and that 16 percent of arable land is already degraded.

The fourth, and perhaps most fundamental, factor is climate change. Overall, the International Panel on Climate Change (IPCC) projects that global food production could rise if local average temperatures increase by between 1 and 3 degrees Celsius, but could decrease above this range.

Crucially, however, this is before extreme weather events are taken into account; and the IPCC judges that extreme weather, rather than temperature, is likely to make the biggest difference to food security.

Glacial melting will affect agriculture as well: the IPCC estimates, for example, that many Himalayan glaciers could disappear by 2035, with catastrophic results for Chinese and Indian agriculture during the dry season. Its assessment is also that ‘climate change increases the number of people at risk of hunger’, and will lead to an increase of between 40 million and 170 million in the number of undernourished people.

Many of these factors, on both the supply and the demand side, also apply to fisheries and aquaculture. Demand for fish and seafood is rising sharply, again largely because of increasing affluence. But while the FAO estimates that an additional 40 million tonnes of aquatic food a year will be needed by 2030, it also notes that catches of wild fish have remained roughly stable since the mid-1980s, at around 90 million tonnes a year, and forecasts that this figure is unlikely to rise substantially.

These underlying trends will place increasing emphasis on aquaculture, which last year accounted for 43 per cent of fish consumption (up from just 9 per cent in 1980).

However, future expansion of the sector will depend not only on increasing investment capital, but also on availability of land, fresh water and energy –which as noted above, are all already subject to stresses of their own.All in all, the jury is still out on whether recent food price rises will be sustained or not.

Many commentators, including the World Bank, estimate it will take ‘several years’ for supplies to increase to rebuild stocks and allow prices to fall.

However, over the longer term, structural factors – a population forecast to rise to 9.2 billion by 2050, rising affluence and the four ‘scarcity trends’ referred to above – suggest the possibility of a structural, rather than merely cyclical, shift. Models from both IFPRI and the US Department of Agriculture show that while food prices will not rise much more over the next decade, they are also unlikely to fall significantly.

Rising food prices will hit poor countries and poor people hardest, and will present an obvious impediment to achieving the Millennium Development Goal of halving hunger by 2015.

The FAO has already announced that 36 countries are in crisis in terms of food security, and will need external assistance; of these, 21 are in Africa (although not all of them have been affected equally).

Poor people typically spend a high proportion of their income on food purchases: Oxfam put this figure at around 50–80 per cent.

Of particular concern are landless poor people in rural areas. Most poor people are rural, and most rural poor people are net food buyers, who are unlikely to be compensated fully by additional employment as agriculture grows, or by higher wages.

However, the extent and rapidity of current rises mean that urban populations are also being hit, as World Food Programme head Josette Sheeran recently noted: ‘There is food on shelves but people are priced out of the market. There is vulnerability in urban areas we have not seen before.’

High food prices are already posing extensive challenges to the provision of humanitarian aid.

The World Food Programme currently feeds 73 million people in 78 countries (less than a tenth of the world’s undernourished). Its agreed budget for 2008 was $2.9 billion, but rising costs – for logistics as well as for food itself – mean that, according to the WFP, this level will not even cover current deliveries and at least $500 million more will now be needed.

Josette Sheeran raised the possibility in a recent interview that the agency would have to look at ‘cutting the food rations or even the number of people reached’ if the additional funding were not forthcoming. Improvements in aid quality are needed too: humanitarian aid still needs to shift to a proactive insurance model from its current reactive configuration.