Microeconomics

nomics1.0 Introduction

The continuous rising in food prices leading experts to worry that the increasing food prices could cause to widespread shortage. Since the early 2000s, food prices have been rising on world markets, and since 2006 have climbed strongly. It is forecasted that there would be rising in food prices for the next ten years that can be seen in the structural changes in supply and demand. (Wiggins and Levy, 2008) There was a dramatic increase in the global food prices in the years 2007 to 2008 which created a global crisis and causing political and economical instability and social unrest in both poor and developed nations. (Wikipedia, 2007, 2008)

The phenomenon of rising food price can be seen from Figure 1 which shows that the food price index is increasing dramatically. According to the World Bank, global food prices have climbed by 83% over the last three years.

Figure 1: Average food price index

The World Bank reports that global food prices rose 83% over the last three years and the FAO cites a 45% increase in their world food price index during just the past nine months. The Economist’s comparable index stands at its highest point since it was originally formulated in 1845. As of March 2008, average world wheat prices were 130% above their level a year earlier, soy prices were 87% higher, rice had climbed 74%, and maize was up 31%.This can be seen in Figure 2. (Holt-Giménez and Peabody, 2008; cited by Shah, 2008)

Figure 2: Price rises in percentage for corn, rice, soya and wheat

A survey showed that the price for the main local rice, Super G15 has increased by RM 3 to RM 4 per kilogram in all urban areas in Malaysia, including the Klang Valley. In Kedah, Malaysia’s largest rice producing state, the consumer association reported an increase of between RM 1 and RM 2. In Penang, panic buying last month caused stocks to rapidly decline. The Flour Millers Association of Malaysia increased the price for both high and medium...