Paul Krugman has simplified the recent increase in global food prices. On his blog he had the following graph which shows the % declines in grain production.
With the exceptional growth in China and a change in diet, there is more pressure on imports of food. The US Grains Council, which in October pegged China’s 2011 corn imports at 2m-3m tonnes, said that the figure could reach 3m-9m. However, as Krugman, points out the demand for grain is highly inelastic. For the United States, they put the price elasticity of demand for breads and cereals at 0.04 — that is, it would take a 25 percent rise in price to induce a 1 percent fall in consumption.
Most of the decline in world wheat production, and about half of the total decline in grain production, has taken place in the former Soviet Union — mainly Russia, Ukraine, and Kazakhstan. As you may know this was due to unique heatwave that was prevalent in the area. I blogged on this on 5th September last year – Wheat Prices – what’s driving them up? And it’s not just the FSU (Former Soviet Union): extreme weather elsewhere has played a role in bad harvest around the world.