Following the world food price spike in2008 and again in 2011, there has been increased attentionon better understanding the drivers of food prices, theirimpacts on the poor, and policy response options. This paperprovides a simple model that closely simulates actualhistorical food price behavior around which the analysis ofthe drivers of food price levels, volatility, and theassociated response options is derived. Future food pricesare likely to remain higher than pre-2007 levels and recentprice uncertainty is likely to continue for the foreseeablefuture. Accelerated use of food crops for industrialpurposes (biofuels) continues to offset the slowingpopulation growth effect on food demand. World food stocksremain at relatively low levels where the likelihood ofprice spikes is higher. Production gains may be harder toachieve in the future than in the past, with more limitedspace for area expansion, declining yield growth, andincreases in weather variability. Suggested responses toreduce average food price levels are to (i) raise food cropyields, and their resilience, as the single most importantaction needed for an enduring solution to global foodsecurity; (ii) improve the rural investment climate toinduce a private sector supply response; (iii) facilitateland markets to expand planted food crop areas andstrengthen property rights to improve the use of existingcropped areas; (iv) better use price risk management tools;and (v) increase the responsiveness of the food system toprice increases through better integrating markets to ensureworld price signals reach more producers to induce a supplyresponse. To reduce world food price volatility, suggestedresponses are to: (1) develop weather-tolerant cropvarieties to reduce food production shocks; (2) improvemanagement of food-grain stock purchases and releases toreduce, rather than amplify, local and world food pricevolatility; (3) shift to market-based biofuels policies(make biofuels mandates more flexible); (4) open tradeacross all markets to diversify short-term production shocksdissipating the associated price effects; and (5) improvemarket transparency to reduce market uncertainty and theassociated large price corrections following revisions tomarket information (production, stocks, and trade).Suggested measures to reduce the negative impact of priceshocks on food security are: (a) reduce taxes and tariffs(in some cases) to lower domestic prices, (b) short-termfood and cash transfers to preserve purchasing power, and(c) support for agricultural production to try to prevent anext season shortfall that could add to local price increases.
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