Data at our fingertips, myths in our minds: recent grain price jumps as the ‘perfect storm’

The onset of the grain price spikes in late 2007 heralded a heated discussion among economists and policy makers on the source of the problem and appropriate policy responses. The subsequent rounds of price surges hit landless poor consumers hard, and transferred billions of dollars from them to landowners worldwide. Economists offered a list of highly plausible explanations for the recent jumps in grain price levels. Key findings included the large harvest shortfalls caused by climate change, energy prices, and fertilizer prices, as well as demand increases due to the large and persistent annual income increases in India and China. Several declared various combinations of the above factors to be a ‘perfect storm’ in grain markets. In fact little more than a quick series of online searches easily reveals that only the last is plausible as a major cause of recent grain price jumps. In particular there was no major global grain production shortfall. On the other hand biofuels mandates, relatively neglected in many studies, introduced a new source of grain demand that tightened markets and drove up prices. The disconnect between economic analysis and easily verified facts is a disturbing feature of recent economic analyses of grain markets.