All that seems fairly rational and hopeful. But this year’s changes have been more puzzling. Between December and mid-June, the food index rebounded by a third, even though this year’s total cereals crop is expected to be another bumper (2.2 billion tonnes, says the Food and Agriculture Organisation, second only to 2008/09, see chart left). Meanwhile, soyabean and sugar prices have risen by nearly half from trough to peak — see chart below — and the index of “non-food agriculturals” (plants such as cotton or rubber) also rose by a quarter between December and mid-June. Prices have been increasing at a time of plenty.

It’s not meant to go this way

If this was happening during a boom, it might be understandable. But recession would normally dampen down price rises. So what explains the return of food-price inflation? And does it mean that the so-called world food crisis is returning?

There are two clusters of explanation: cyclical factors — features of the farm cycle and world economy that fluctuate from season to season — and secular, long-term factors. Cyclical influences include re-stocking: cereal stocks were run down as prices spiked and need to be replenished. In 2006 and 2007, stocks fell below 450m tonnes, about 20 per cent of consumption; now they are back up over 520m, or 23 per cent. That is one source of new demand. Another comes from ethanol. As oil prices rise, ethanol starts to be competitive again (as a rule of thumb, ethanol is profitable when petrol costs $3 a gallon in America, a level it has just reached in California). The fall in the dollar and in freight rates has also kept the local-currency costs of importing a tonne of cereals lower than dollar-denominated world prices. This has encouraged many countries to buy more.

... contd.