Even  as we spill a lot of ink about what governments should do to solve the "food crisis," markets are sending the appropriate price signals around the world — that it is time to restock the shelves. Proving yet again that the market works, farmers have already responded to those signals by seeding record amounts of the crops most in need.

  Current food shortages and historic price increases have no single cause.  A number of major factors contribute to the dilemma, and you’ll find one of the most  significant factors not at the local supermarket, but at the gas station. The run-up in the price of oil, now pushing upwards of $130 a barrel,  affects every stage of food production, from the initial seed, to the harvested crop, to the processor, to the distributor, all the way up to the final product at the grocery store. An addiction to oil is an addiction to life, someone once remarked. In respect to its influence on food prices, he was certainly right. 
Demand for oil in OECD countries, according to the latest International Energy Agency market report, is slightly down but non-OECD nations, particularly in the Middle East and Asia, are more than making up the difference. Overall demand is still up because of these countries’ strong economies, and because of government price-fixing and subsidy schemes that shield consumers from world prices.
The second major factor in the price of food today is the decline of the American dollar against the basket of foreign currencies. Lawrence Kudlow, the host of CNBC’s Kudlow and Company, states: "Along with the Fed’s excessive interest-rate cutting, the emergence  of the U.S. peso is the biggest driver of rising commodities and inflation." 

Biofuels are also a factor, but not nearly to the extent that most pundits claim. Remember that the tariffs, subsidies and mandates used to bring these fuels into existence have been popular tools around the world for decades now. In the last 20 years, OECD governments have spent over US $5-trillion on a hodgepodge of interventionist policies, sometimes artificially stimulating demand and at other times supply.  Biofuel is just the last one to arrive at the dance.     

Don’t forget the fundamentals of supply and demand in all of this, either. With a global population that is continually growing — not only in numbers but also in wealth — stocks of key foodstuffs have fallen to record low levels as more and more people are eating more and better food. At the end of 2007, global stocks for rice were estimated to be the lowest in 25 years; we haven’t seen world wheat stocks drawn down to current levels in 60 years.
Consequently, the price  of these grains has skyrocketed. Rice, which used to trade in a range of $4-$10 per hundredweight on the Chicago futures exchange, shot up to $24 this past April. Wheat, which used to have a hard time reaching the $5-a-bushel mark at the Minneapolis grain exchange, peaked at $25 a couple of  months earlier.

The May 9 U.S. Department of Agriculture (USDA) report shows us how quickly and effectively markets can work in allocating the appropriate resources to meet even what seems to be insatiable demand. Rice production is expected to increase five million tonnes this year to a record-breaking 432 million tonnes, with year-end stocks projected to be the largest in six years. Similarly, the USDA is forecasting a record global wheat harvest of 656 million tonnes, up 8% from last year. When all is said and done, ending stocks should be 13 per cent higher than in 2007. Prices for these commodities, while still high in historical terms, are also well off their peaks from just a few months ago. 
The best thing that governments, including our own, can do to help with the "food crisis" is to recognize that markets do work, and that far too often it is government’s own meddling in the marketplace that exacerbates problems. Unfortunately, far too many still believe that the exact opposite is true.

(Rolf Penner is a farmer and the Manitoba vice-president of the Western Canadian Wheat Growers Association. This article first appeared in The National Post.)