World Grain Prices

May 7, 2012 6:15 AM

An often underappreciated fact is that global market conditions have a profound effect on food availability in North Korea.  When world food prices rise, it makes it both more difficult for North Korea to import grain on commercial terms, as well as attenuating the availability of aid, as donor countries reduce support. It is not by accident that the three worst food emergencies in the past 20 years have coincided with periods of peak cereals prices as shown above.

Last week the Food and Agriculture Organization released data showing that global food prices were down in March, consistent with the organization’s earlier prediction of easing prices in the short-run. Corn prices were down 2.5 percent, wheat prices declined, and rice prices fell marginally. These easing market conditions could be expected to cushion distress in North Korea which is severe in certain areas, according to anecdotal reports.

World food prices have been trending upward for a half century, and even with their recent declines cereals prices remain quite high from a long-term perspective.  Price volatility has also risen: in an excellent report, Cullen Hendrix points out that the volatility of rice prices has nearly tripled in the past 15 years.  A number of developments appear to be driving these outcomes: increases in prices for oil, water, and fertilizer which are inputs to food production; increased demands for grain directly and indirectly through higher meat consumption in many emerging markets, most notably China; diversion of stocks to the production of ethanol; the growth of financial speculation in food commodity markets; and disruption of international trade, primarily due to export embargos, to name a few.   None of these drivers are likely to be reversed, at least in the short-run.  The implication is that North Korea is likely continuing pressure on food availability emanating from the global market, regardless of the recent fall in prices.

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