Global Food Crisis - FAQ: The five factors that are driving up costs

Several factors have come together to drive agricultural commodity prices up:

· Soaring oil and energy prices have pushed up the cost of food production dramatically in the last year: fertiliser is up more than 70%, fuel for tractors and farm machinery is up 30%, pesticides, which depend on oil, are up too, as are labour costs;

· Demand is rising as the global population grows and as people in emerging economies such as China and India use increasing affluence to buy more meat, eggs and dairy products. Over 30% of the world's grain now goes to feeding animals rather than people directly. Farming one acre of decent land can produce 138lbs of protein from grain, but one acre given over to beef farming will produce only 20lbs of protein;

· Droughts in grain-producing areas of the world have hit harvests in the last few years. Grain stocks are at a historic low;

· Biofuels are competing with food for arable land, with both the US and the EU mandating their use. About 30% of the US corn crop is expected to be diverted to biofuels this year;

· Speculative trading in agricultural commodities has grown dramatically. Several big investment banks have launched agricultural commodity index funds, as they look for new areas to make profits in following the credit crunch. The result has been enormous fluctuations in market prices that do not appear to relate to changes in fundamentals such as supply and demand. Four years ago $10-15bn was invested in agricultural commodities funds - now that figure is more than $150bn. Wall Street investment funds own 40% of US wheat futures and more than one fifth of US corn futures.

read more at the Guardian