Summary: 20 May 2008, Brussels - The European Commission today adopted a Communication setting out potential policy responses to mitigate the effects of rising global food prices. The document will be discussed at the European Council on 19-20 June. The Communication analyses structural and cyclical factors and proposes a three-pronged policy response, including short-term measures in the context of the Health Check of the Common Agricultural Policy (see IP/08/762) and in the monitoring of the retail sector; initiatives to enhance agricultural supply and ensure food security including the promotion of sustainable future generations of biofuels; and initiatives to contribute to the global effort to tackle the effects of price rises on poor populations.
Commission President José Manuel Barroso stated: "The European Union has reacted rapidly to the sudden surge in food prices. We are dealing with a problem that has many root causes and many consequences. So we need to act on several fronts at the same time to address them. The possible policy responses we put on the table today complement the measures we have already taken. The Commission calls on Member States to give a united European response to this global challenge. We will coordinate
our response with our international partners within the UN and the G8".
Why have food prices risen?
The Communication examines the reasons behind the recent surge in food prices, both within the EU and internationally. The increase followed a three-decade long trend of declining agricultural prices. Recent indications show a decline from the peak levels of early 2008 for most commodities. Among structural drivers of higher food prices has been a steady rise in demand for both staple and higher value-added foods, particularly in large emerging economies and a general growth in world
population. Rising energy costs are having a marked effect on food prices, particularly by increasing the cost of inputs like nitrogen fertilisers, for which the cost has risen 350 percent since 1999, and through increased transport costs. The growth in crop yields has slowed down and new outlets for agricultural products have emerged. Temporary contributing factors include poor harvests in a number of regions of the world, a historically low level of stocks, the depreciation of the US dollar,
and export restrictions in a number of traditional suppliers to the world market. Speculation has amplified the underlying price volatility.
Effects in the EU
Rising commodity prices have contributed to higher food and headline inflation in the EU, though transmission to retail prices was limited by the appreciation of the euro, the falling share of raw materials in food production costs compared to energy and labour and the low share of food in average household expenditure. But the impact has been felt much more starkly in some Member States than others and has had a more serious effect on low income families. While arable farmers have benefited,
livestock producers have been hit by higher feed prices.
Effects at global level
Developing countries that are net food importers are the hardest hit, while net exporters have generally benefited. If higher prices have not yet led to food shortage, they have translated into greater poverty, malnutrition and increased vulnerability to further external shocks for the world's poorest. However, in the medium to long-term, rising prices potentially present new income-generating opportunities for farmers in the developing world and could enhance farming's contribution to economic
growth.
Future trend
Prices have begun to fall from recent peaks and the Commission expects this to continue and markets to stabilise. However, the Commission does not expect a return to the low prices of the past.
The policy response
The three-pronged policy response proposed by the Commission today consists of the following measures:
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