Report No.250306
Vol.25 No.3-4 Nov. and Dec., 2007


Soaring World Grain Price Demanding Policy to Increase Domestic Production

Grain prices have been continuously soaring. While a price of soybeans hit highest level in 19 years, that of wheat remained at a high level. Corn prices hovered at high. The view prevails that this will be a prolonged trend since the soaring prices have been caused by structural factors, not by a temporary phenomenon. Japan, the largest net food importer in the world, should take this opportunity to fundamentally review the production expansion and other commitments to the agriculture.

At a Chicago grain market, a price of soybeans rose to $10.66 per bushel on November 14 of 2007 from the $6.00 range in 2006, breaking the previous record in 1988. Subsequently, the price has fluctuated at the range of $10.00 and is now closing to $12.00 recorded in 1973 when the "soybean crisis" occurred. Wheat prices also jumped to $9.50 per bushel on October 1 of 2007 compared to $3.00 to 4.00 a year ago, hitting highest level. Recently, they decreased to $7.00 to 8.00, still being twice as high as the previous year. The same is true of corn. The prices reached as high as $4.30 per bushel in February of 2007 in comparison with the $2.00 range a year ago. They now tend to hover at high of $3.80.

The soaring prices are attributable to abnormal weather conditions that include serious drought in Australia, dry conditions in Ukraine and Canada, and localized flood and drought in the U.S. In addition, a surge in oil prices and "money game" are said to have an influence on them.

As a report from a study group on international food issues under Ministry of Agriculture, Forestry and Fisheries points out, however, structural factors should be the largest contributor. International environments surrounding foods described in the report include: (1) a significant change in food demand in terms of both quantity and quality due to the rapid economic growth in China, India and other countries; (2) competition for grains occurred between bio-fuel and food industries; and (3) frequent occurrence of abnormal weather conditions throughout the world because of the global warming that has affected the agricultural production.

50% of sugar canes and 27% of corn harvested in Brazil and the U.S., respectively, were used for the production of bio-ethanol. According to International Energy Agency (IEA), in 2030 bio-fuel will show a six-fold increase in production from 2004.

Yield remarkably increased by 230% in the past 40 years while the harvested area remained almost the same at 700 million ha during the same period. The annual growth of yield has, however, dropped to 1.5% from 1980s onward compared to 3% in the 1960s and 2% in the 1970s. In fact, some have a view that the rise in agricultural product prices encourages farmers to increase their production, resulting in higher yield. Many constraining factors should be noted, for example, irrigation area. Additionally, desertification occurs on the land of 5 million ha a year mainly due to the global warming these days.

Excess or deficiency of production has been compensated by the increase or reduction in inventories. The year-end inventory rate lowered to 15.0% in 2007 from 31.6% in 1996 and 16.4% in 2006. The figure is at the same level as in the early 1970s when the food crisis occurred. Abnormal weather conditions can now bring about a food panic at any second.

Thus, the recent surge in grain prices is a deep-seated issue, and the prices are very likely to rise further. Japan should make an active commitment to the improvement of the food self-efficiency ratio.

( Editorials from the Nihon Nogyo Shimbun on November 26, 2007)

[Top of Page]