CAUSES OF THE CRISIS 13


of metals and minerals), and fertilizer prices roughly quadrupled during both crises. Other agricultural commodities (for example, cash crops) have not risen anywhere near as quickly, however (Table 2.1). This observation begs the question of whether food-specific factors are driving the surge in food prices or whether other factors that have common effects across these com- modity groups—such as the importance of energy costs in production, global macroeconomic factors (including growing commodity demand from China and India), or low interest rates and their effects on investment decisions— are the dominant cause of recent price trends. A fourth fact is that the timing of price rises is somewhat different across commodities, and even across staple foods. The fourth column of Table 2.1 shows percentage price changes from 2004 to the first five months of 2008 only, and Figure 2.3 shows graphically which commodity prices rose first. Fig- ure 2.3 shows that maize prices rose first, then wheat, and then rice. Table 2.1 confirms that most of the price rise in wheat and maize occurred prior to 2008, but that three-quarters of the increase in the price of rice occurred in 2008—almost certainly because of adverse policy responses, such as export bans from some major exporters. Nevertheless, increases in rice prices from 2004 to 2007, which were on the order of 60 percent, were actually higher than the contemporaneous price increases of the other three staple crops considered (57 percent for wheat, 44 percent for maize, and 28 percent for soybeans). This fact has mostly been overlooked, although it is worth not- ing that rice is a thinly traded commodity (90 percent of all rice output is consumed domestically), and rice prices are generally more volatile than the prices of other staple crops. Hence rice is distinctive both in terms of the timing of the price rises and the nature of its international trade. A fifth fact is that the U.S. dollar has depreciated against a wide range of currencies. Against the other special drawing-rights currencies (the U.K. pound, euro, and Japanese yen), the U.S. dollar has depreciated some 30 percent since the beginning of 2002. All commodities listed in Table 2.1 are expressed in U.S. dollars; thus the price increases would be much less sharp if measured, for example, in euros. The increase in nominal prices of key staples is about 25 percent less when measured in euros, somewhat less than that when measured against the USDA’s trade-weighted agricultural exchange index, and roughly the same when measured in pounds or yen. Some authors also consider U.S. dollar depreciation to be a causal factor in the crisis, an issue that is revisited below.


A sixth fact is that in both the 1974 and 2008 crises, commodity prices quickly plummeted from their peaks. From 1974 to 1978 the prices of staple grains (and several other commodities) fell by about 50 percent (Table 2.1), with most of this decline occurring in 1975 and 1976. In the recent crisis,


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