CAUSES OF THE CRISIS 51


in rice prices (along with deeper spillovers from other commodities, such as wheat and oil markets) and could perhaps account for as much as half of the increase in wheat prices. They may even have played an important role in maize markets.


Summary of the Causes and a Model of a “Near-Perfect Storm” Only two studies to date have considered all factors with sufficient rigor: the studies by Abbott, Hurt, and Tyner (2008) and by Mitchell (2008). Mitchell alone was bold enough to give some rough estimates of the contribution of each cause to the overall rise in food prices. An encouraging feature of both these analyses is that they are in broad agreement, although Abbott, Hurt, and Tyner (2008) stress the importance of the weakened dollar somewhat more than does Mitchell (2008). Although we extend the evidence in several regards, our own appraisal also offers similar conclusions and supporting evi- dence. These points of consensus are as follows.


First, all three studies emphasize growing demand, but they attribute it mostly to demand from the biofuels industry for maize and, to a lesser extent, for oilseeds. None of the three studies could find any substantial increase in demand from China and India, except in the case of soybeans (although this trend started many years ago), and in the case of demand for fuel (although China’s and India’s increasing demands are not necessarily the dominant explanation for rising oil prices). However, unlike the other two studies, we emphasize short-term demand surges from an array of countries as a signifi- cant determinant of tighter international cereal markets. Second, all three studies emphasize higher energy prices, but Abbott, Hurt, and Tyner (2008) emphasize that the main effect of rising energy prices was to make biofuels more profitable, rather than agricultural production more expensive (that is, it was a demand-side effect). Mitchell (2008) estimates that oil prices had a supply-side effect that accounts for about 15–20 percent of the food price increase, but we find that (1) agriculture is much more oil-intensive than is production in other sectors, which generally rely on other forms of energy, and (2) oil-related production costs on U.S. farms have risen by almost 40 percent of revenues. How much of these increased production costs are passed on to prices is difficult to say, but we suggest that Mitchell’s (2008) estimate is probably too low. We also emphasize that rising oil prices, the weaker dollar, and the influx of foreign exchange reserves for energy-exporting countries significantly strengthened their demand for U.S. cereals. Third, the studies by Mitchell (2008) and Abbott, Hurt, and Tyner (2008) go further than other analysts in emphasizing the effects of dollar deprecia- tion. Mitchell (2008) suggests this effect accounts for another 20 percent of the rise in food prices by sustaining international demand even as nominal


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