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Principles Of Economics Essay

4945 words - 20 pages

Table of contents

Components | Page |
Question 11.1 The Causes of Global Food Crisis i. Rising of Population Growth Rate ii. Increased oil price iii. Increase Demand for Biofuel iv. The Exchange Rate of US Dollar v. Weather Disruption & Natural Disaster vi. Low Global Stocks of Grains vii. Tariffs and policies 1.2 The Effects of Global Food Crisis i. Effects at the national level ii. Effects at the household level | 1-11 |
| 11-13 |
Question 2 i. How the governments intervene ii. Why the governments intervene | 13-20 |
References and Appendices | 21-23 |

Question 1: Causes and effects of global food price rises.
1.1 ...view middle of the document...

On the other hand, supply-side factors are weather disruptions and natural disasters and finally, tariff and policies.

Figure 2: Total population and annual increments

Source: FAO

Figure 2 showing the total population and annual increments. A strong global economic growth combined with rising of population growth rate is increasing the demand for food. Although the world's population growth rate has been trending downwards since before the 1970s, the number of people on earth is still rising by about 75 million (1.1 percent) per year. This rising population adds to the global demand for agricultural products and energy. South-East Asia's real gross domestic product (GDP) increased by more than 9 percent a year between year 2005 and 2007. The World Bank estimates that food production will need to grow by another 50 percent by year 2030 and meat production by 85 percent to fulfill projected demand (Wiggins, Blas 2007). As a result, this drives to temporary excess demand for food, cattle feed, dairy, poultry and other foods therefore food prices increase.

Figure 3: Prices of oil and food commodities

Source: International Monetary Fund: International Financial Statistics.

The rise in the price of oil is affecting the production cost. For instance, fuels is used in tractors and transports. As well as fertilizers and pesticides, both is used in agriculture. The sharp increase in energy prices began in 2003 which is 15 percent compared to2002 and is now at an all-time high, more than 125 US dollar a barrel in June 2008 (ADB 2011). An increases of 37 percent in 2004, that is about two years before the hike in grains prices which is 20 percent increase in 2006 as compared to 2005, and 43 and 60 percent in the following two years (ADB 2011). The associated increase in petroleum use in developing countries has contributed gradually rising of oil prices since 1999 and the oil imports of China alone grew 20 percent per year from 166 million barrels in 1996 to 1.06 billion barrels in 2006 (ADB 2011). The cost of fertilizer, fuel and pesticides began to rise already in 2004 (USDA 2008). Fertilizer, irrigation and transport costs have increased by 30 to50 percent and the cost of urea has almost tripled since 2003 (ADB 2008). The US dollar prices of some fertilizers increased by more than 160 percent in the first months of 2008 compared to the same period of 2007 (FAO 2008). Also, freight costs increased on the basis of soaring fossil fuel prices, increasing by about 100 percent from 2006 to 2007 (FAO 2008).

Figure 4 : Ethanol production - Mostly from grain feedstock except for Brazil

Source: Organization for Economic Co-operation and Development (OECD)

Figure 5: Biodiesel production

Source: Organization for Economic Co-operation and Development (OECD 2008)

Increase of demand for ...

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