According to the Economic Research Service of the USDA, 62 percent of US farms are located in areas experiencing drought. About 40 percent of maize and soybeans and 44 percent of livestock are produced in areas experiencing severe drought. As a result, national crop yield and harvest estimates for maize and soybeans have been lowered considerably. Experts suggest that crop losses for maize are coming close to 20 percent and could reach 30 percent or more if extreme drought conditions persist. Crop prices have already started to rise rapidly and could increase further depending on the degree of severity and extent of the drought. Just between June and mid-July, US Gulf port prices for maize and soybean increased by 22 and 14 percent respectively, with prices for both crops reaching record highs.
Poor and vulnerable groups in developing countries are hard hit by high and volatile prices of the agricultural commodities they depend on for their primary daily caloric intake. As experienced during the 2007-08 global food price crisis, price movements in domestic markets can have significant impacts on global markets, and vice versa. This is especially true, as the United States is the top producer and exporter of maize and soybeans. As of 2011, US production of the two crops accounted for more than 30 percent of total world production, and US exports represented over 40 percent of total world exports. Also, increases in maize prices, for example, can greatly affect the prices of such foods as meat and dairy, due to higher feed costs.
Several urgent actions must be taken to address the current situation in order to prevent a potential global food price crisis:
- Monitor the situation. Key institutions, including USDA, FAO, UNCTAD, World Bank, and WFP, in collaboration with local partners, should pay close attention to developments in food supply, consumption, prices, and trade, as well as agricultural commodity speculation. This will help quickly detect any imbalances and facilitate swift responses.
- Halt biofuel production from maize. Food crop demand for biofuels, particularly in the United States and EU, must be cut substantially to help relieve the pressures on both domestic and global food markets. Currently, about 40 percent of total maize production in the United States is used to produce ethanol.
- Avoid export bans and panic purchases. Countries must stay away from imposing export restrictions when food prices increase because they lead to tighter market conditions and panic purchases by food-importing countries, thereby exacerbating food price hikes.
- Prepare to use national grain reserves. Large food-producing countries must be ready to deploy some of their grain reserves to address food emergencies, with emphasis on vulnerable populations.
- Ensure the WFP has sufficient access to food purchases for emergency relief efforts. WFP’s access to food purchases must be enhanced in order to facilitate effective responses during times of crises. Such emergency preparedness is crucial as rising food prices have implications for the effectiveness of WFP’s food assistance programming, as well as the availability of funds for resilience building activities.
- Boost developing country agricultural output and productivity. Developing country crop production for the next season, as well as productivity, must be enhanced in order to reduce the effect of high and volatile prices on their national food security. In the long run, boosts to smallholder productivity, including enhanced access to high-quality/stress-tolerant seeds, fertilizer, new and affordable technologies, and rural infrastructure, must be made top priority. Innovations in financial services, for example, the use of modern communication technologies; risk-management mechanisms, such as weather-based index crop insurance; and institutional arrangements like social and rural knowledge networks are also imperative.