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Global food prices are characterized by year-to-year volatility and periodic sharp spikes. While year-to-year volatility is easily managed by most countries through changes in their trade and domestic policies, it is steep and severe periodic price shocks that can lead to some sort of a crisis at the global and national levels. The crisis can emerge in the form of food shortages, trade disruptions, a rise and spread in hunger and poverty levels, depletion of foreign exchange reserves for net food-importing countries, a strain on a nation’s fiscal resources due to an increase in spending on food safety nets, a threat to peace, and even social unrest in some places. Because of these widespread ramifications of food price shocks, it becomes imperative to understand the real causes of such shocks and devise effective mechanisms to deal with them.

Historical data on food prices compiled by international agencies such as the Food and Agriculture Organization of the United Nations, and the World Bank/International Monetary Fund show that since the onset and the adoption of Green Revolution technology in the early 1960s, the world has been struck thrice by food price crises. The first shock was experienced during 1973-76 when the food price index (based on prices in U.S. dollars) doubled in nominal terms and increased by one-third in real terms compared to the pre-shock average of four years. This shock moved up the nominal prices of commodities (including food) into a new trajectory. However, for the next two decades, food prices in real terms followed a declining trend and were at their lowest around 2002. After this, nominal as well as the real prices of food began rising; this momentum built up to culminate in the next food price crisis of 2008, which was further intensified by 2011. While the price shock began softening after 2014, food prices did not move back to their pre-2006 level. The lull in global food prices stayed for a short duration, from 2015 to 2019, and food prices again began moving above the trend by the third quarter of 2020. This time the increase in the food price index happened very quickly and it turned out to be very big - it has taken the food price index to its historically highest level.