LIANE HANSEN, host:
A sharp increase in food prices is one catalyst behind the demonstrations that are changing the political landscape in the Middle East. The cost of wheat and corn rose more than 70 percent in the second half of last year.
NPR's John Ydstie reports on what's behind the spike that sent the U.N. global food price index to record levels.
JOHN YDSTIE: Sharply rising food prices are hitting hardest in poor countries like Haiti, Bolivia and Mozambique, where people spend more than half their income on food.
Dr. ABDOLREZA ABBASSIAN (Senior Economist, Food and Agriculture Organization, United Nations): People who are already undernourished may have to forgo a meal. It does add to the number of hungry people.
YDSTIE: That's Abdolreza Abbassian. He's a senior economist for the U.N.'s Food and Agriculture Organization. Abbassian says the situation is alarming, but not yet a food crisis like the one the world faced three years ago. He says many factors have contributed to the upward pressure on food prices. Demand for more varied diets in emerging economies like China is one. Also, the diversion of crops for use in biofuels like ethanol.
But, he says, the primary cause of the big spike in fuel prices is bad weather last year.
Dr. ABBASSIAN: From Russia's drought, Pakistan, North Europe, in the U.S. the rains, to Australia of course the rains and the floods, and then dry conditions in Latin America. So it looked like Mother Nature picked out the worst months to behave very bad.
YDSTIE: It was the worst drought in a hundred years in Russia's wheat growing region. The huge wheat exporter halted shipments to foreign customers, including Egypt. And last week, Russian officials said they may extend the ban. The ruined harvest left global wheat and corn stocks very low and pushed up prices sharply.
A decade ago that might not have happened because government crop subsidies in the U.S. and Europe produced huge stockpiles. But a change in world trade rules ended those subsidies and the stockpiles have disappeared. It was hoped that investment in Third World farmers would take up the slack.
But Abbassian says governments, including the U.S., have invested just a fraction of what was pledged.
Dr. ABBASSIAN: In spite of all their declarations and statements made, really the investment in agriculture is really lagging behind.
YDSTIE: Smaller stockpiles have led to more volatile prices. That volatility has attracted speculators who profit from rapid price changes. But so far, there's little evidence that speculators are significantly boosting overall prices.
Bad weather may have set the stage for this spike in grain prices, but Greg Page, president of the global food giant Cargill, says that while supplies are tight, prices have risen more than was necessary. He says that's partly because of instantaneous global communication.
Mr. GREG PAGE (President, Cargill, Incorporated): People read stories about food prices going up and/or food being short, and there's a natural hoarding instinct, I think, wired into all of us. And people buy that extra five pound bag of flour or two liter bottle of vegetable oil.
YDSTIE: Multiply that by 100 million households, says Page, and concern about a food shortage becomes a self-fulfilling prophecy. Governments got into the hoarding act too, he says.
Mr. PAGE: The Saudis have made a public announcement about their intention to double their strategic reserve. The Algerians have made a similar statement in the last several weeks.
YDSTIE: Other nations are buying up grain stocks, too. And all of this has pushed prices higher. Luckily, Page says, those high prices are a signal for farmers.
Mr. GREG WESTLAND (Farmer): My name is Greg Westland. I'm from Cando, North Dakota. We are producers of hard red spring wheat and soybeans. We farm around 5,600 acres.
YDSTIE: The snow is still deep in North Dakota. But Westland is preparing for planting; spending days in his shop with his sons, prepping equipment. The very high prices have convinced him to try to boost the number of bushels he produces per acre.
Mr. WESTLAND: We're adding more fertilizer, shooting for a 60 bushel hard red spring wheat crop up here and a 42 to 45 bushel soybean crop.
YDSTIE: Those yields would be about 20 percent above average.
Cargill's Page says his company's brisk fertilizer and seed sales indicate that farmers are responding.
Mr. PAGE: If nature gives them any collaboration at all, I think that we are clearly in a position to feed the world handsomely, and actually to build some stocks this year based on the number of acres we would predict will be planted.
YDSTIE: As long as the weather cooperates. The U.N.'s Abbassian agrees. But both also acknowledge that climate change adds another level of uncertainty. One other wild card: The recent run up in the price of oil, which, if it persists, could boost already high food prices.
John Ydstie, NPR News, Washington.