THE prices of staple crops, like those of other commodities, are falling fast. In August they reached their lowest level for eight years, down by over 41% from their peak in 2011. That is not because people are eating less, or because farmers have become much more productive. Nor is it because of a slowdown in Chinese growth, in contrast to many other commodities. Whether going down or up, food prices are largely driven by other factors, among them oil prices and government policy.
Oil first. Cheap fuel means cheaper food. Natural gas, whose price is tied to that of oil, is used for producing fertiliser; other hydrocarbons are used for machinery and transport. Roughly 20% of the cost of producing grain comes from oil, according to Kona Haque at ED&F Man, an agricultural-commodities merchant. Cheap oil also means less demand for biofuels, which in turn means cheaper food because of reduced appetite for grains used in biofuels, particularly maize (corn). Biofuel demand, once an insignificant feature of food markets, now has a sizeable impact: from 2000 to 2011, America went from using 6% of its corn crop (the world’s biggest) to make ethanol, to 40%.
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