Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - Tackling the challenge of rising food prices - Directions for EU action
Date: 2008-05-20
Institutions: European Commission
Subjects: economic consequence, economic forecasting, economic policy, food price, price increase, price of agricultural produce

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 20.5.2008 
COM(2008) 321 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Tackling the challenge of rising food prices 
Directions for EU action 

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TABLE OF CONTENTS 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

Introduction .................................................................................................................. 3 

A sudden and steep surge across a broad range of agricultural commodities.............. 3 

The root causes of high food prices: temporary and structural factors ........................ 4 

Outlook for the medium term....................................................................................... 6 

The impact within the EU ............................................................................................ 6 

The impact at global level ............................................................................................ 8 

Elements for an EU response ....................................................................................... 9 

Conclusions ................................................................................................................ 13

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1. 

INTRODUCTION 

For thirty years, food prices both in Europe and globally have fallen in real terms. This trend 
has  been  reversed  over  the  past  months  by  sudden  and  steep  upward  movements  in  world 
agricultural commodity prices.  

The  price  surge  affected  several  commodities  at  the  same  time:  cereals,  meat,  and  dairy 
products all recorded two digit or even three digit increases in less than a year. The size and 
abruptness  of  the  price  surge  have  generated  macro-economic  imbalances  across  the  world. 
Developing  countries  and  the  most  vulnerable  populations  have  been  hit  disproportionately. 
Millions of people living on the edge of poverty face hunger and malnutrition..  

Inside the Union, food price inflation reached 7% in March 2008. For European consumers, 
the  effects  of  soaring  food  prices  have  been  worsened  by  simultaneous  increases  in  energy 
prices.  Households  purchasing  power  has  gone  down  and  it  is  the  16%  of  Europeans  living 
below the poverty threshold who are most exposed.  

2. 

A  SUDDEN  AND  STEEP  SURGE  ACROSS  A  BROAD  RANGE  OF  AGRICULTURAL 
COMMODITIES 

Reversing three decades of declining agricultural prices (in real terms), the prices of a number 
of  commodities  started  a  steady  upward  movement  in  2006.  They  increased  dramatically  in 
the second half of 2007 to reach a peak level in the first months of 2008.  

The  increase  was  sharp  and  affected  a  broad  range  of  commodities  simultaneously. 
Between  September  2006  and  February  2008,  world  agricultural  commodity  prices  rose  by 
70% in dollar terms. Particularly strong increases concerned wheat, maize and rice prices as 
well as dairy products1. Reference prices for world markets in early February 2008 compared 
to the same month of 2007 were of the following order of magnitude: + 113% for US wheat 
versus  +  93%  for  EU  wheat;  +  83%  for  US  soybeans;  +  52%  for  Thai  rice,  +  24%  for  US 
maize. Since February, the reference price for rice (Thailand's export price) has doubled, as it 
went beyond 1000 US $/tonne at the end of April. Meat, such as poultry, and vegetable oils 
also  registered  strong  price  increases.  In  Europe,  prices  for  wheat  and  dairy  products 
increased by 96% and 30% respectively between September 2006 and February 2008.  

Lately, a downward inflexion of the trend has been observed, driven by a decline in the price 
of cereals and of dairy products. Compared to their latest peaks, prices in the EU dropped by 
25% for wheat and by 35% for butter. Rice prices continue to rise, also as a result from export 
constraints imposed by important rice producing countries such as Vietnam, Thailand, India 
and China to avoid domestic shortages. Given the volatility of the situation and the conflicting 
nature of the trends, price movements will be closely monitored in the coming months.  

1 

Some commodities, such as sugar, have seen a continued price decrease. 

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3. 

THE ROOT CAUSES OF HIGH FOOD PRICES: TEMPORARY AND STRUCTURAL FACTORS 

The observed price movements are the result of a complex combination of both structural 
and more temporary factors. While there is consensus on which factors are relevant, views 
differ with regard to their relative importance. Furthermore, he degree by which each factor 
explains increases in prices varies by commodity and by region. The causes behind price rises 
for wheat and rice are substantially different from those for maize and soya. The former have 
been strongly determined by supply-side issues. In the case of the latter, demand growth has 
played a major role. Supply-side factors appear to have triggered greater price responses than 
has demand growth.  

Looking into structural drivers of market changes, over the past years a steady rise in demand 
for  staple  commodities  and  for  higher  value  added  food  can  be  observed  from  emerging 
economies, such as China, Brazil and India. This is driven by record economic growth rates, 
urbanisation  and  changes  in  dietary  patterns  (notably  for  meat:  for  example,  today,  Chinese 
consumers eat 50 kg of meat per year, compared with just 20 kg in 1985.). In broader terms, 
the  growth  in  world  population,  notably  in  developing  countries,  has  also  contributed  to 
expand food demand.  

High energy prices are also affecting agricultural prices. According to some analysts, rising 
energy  prices  have  a  more  significant  impact  on  food  prices  than  increases  in  the  price  of 
agricultural  commodities.  They  are  affecting  food  prices  directly,  by  raising  the  price  of 
inputs,  such as fertilisers,  pesticides and diesel, as well as the  processing and transportation 
costs. The price of nitrogen fertilizer is up 350% since 1999, largely due to fuel costs. Freight 
costs  have  also  gone  up  significantly.  Indirectly,  the  rapid  rise  in  crude  oil  prices  also 
increases the demand for biofuels, as it makes them a viable substitute for fossil fuels. 

Demand  for  agricultural  commodities  is  also  influenced  by  the  emergence  of  alternative 
market outlets, in particular the biofuels market. Commission analyses indicate that current 
EU biofuel production has little impact on current global food prices, as biofuels use less than 
1 per cent of EU cereal production. The European Council has agreed a target of 10% biofuels 
in transport fuel by 2020: such a long lead-time makes it unlikely that this can have had an 
impact  on  prices  today  and  the  sustainability  criteria  proposed  by  the  Commission  will 
mitigate the impact for the future. On the other hand, the proactive policy pursued by the US 
has  had  a  noticeable  impact  on  the  maize  market,  but  so  far  has  remained  a  relatively 
moderate contributor to high food prices in general. US production of bioethanol is estimated 
to absorb around 25 per cent of national maize production.  

Some structural factors are also depressing supply potential. These include the slowing down 
of growth  in food  cereal yields, which has concerned in particular European producers, but 
also partly reflects years of underinvestment in agriculture in developing countries.  

Furthermore,  climate  change  analysis  suggests  that  unusual  weather  patterns  are  likely  to 
become more pronounced, with possible consequences in volatility of agricultural production 
because of weather-related supply shortfalls.  

While  structural  factors  can  account  for  a  longer  term  but  gradual  shift  in  the  market 
equilibrium, temporary factors have reinforced the direction and speed of changes, acting as 
triggers of the sudden jump in prices. 

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Adverse weather conditions have hit a number of major producing and exporting countries, 
leading to exceptionally poor harvests. For example, Australia suffered three droughts in the 
last six seasons, with production  falling by 50% in 2006. The weather related cereal supply 
shortfall of North America, Europe and Australia in 2006 was more than 60 million tonnes, 
four  times  more  than  the  increase  in  cereal  use  for  ethanol  in  these  countries.  Due  to  the 
historically low level of international stocks, the surge in agricultural commodity prices have 
not been cushioned by stock releases, According to FAO’s forecast, world cereal stocks are 
expected to fall to a 25-year-low of 405 million tonnes in 2007/08, down 21 million tonnes, or 
5%,  from  their  already  reduced  level  of  the  previous  year.  EU  intervention  stocks  are 
depleted.  

Furthermore,  developments  in  the  financial  markets  have  had  an  impact.  There  has  been 
increased  activity  by  speculative  investors  in  commodity  related  financial  markets  to  hedge 
price  risk  or  use  excess  liquidity  in  the  wake  of  the  financial  market  crisis.  These  activities 
lead to increased price movements and volatility on futures and spot commodity markets and 
have amplified the underlying price movements. Their influence on long term price formation 
remains uncertain.  

The depreciation of the US dollar has also contributed to driving prices upwards. Exchange 
rate  effects  have  added  to  the  unequal  impact  of  price  increases.  For  countries  whose 
currencies are tied to the Euro (e.g. FCFA countries in West and Central Africa) the negative 
effects  have  been  somewhat  reduced.  Countries  whose  currencies  are  depreciating  are  hit 
particularly hard. 

Some  exporting  countries  have  responded  to  rising  prices  with  restrictive  export  policies. 
India has introduced export bans, Vietnam and Thailand rice export limits, Indonesia export 
taxes  on  palm  oil,  Kazakhstan  a  ban  on  wheat  exports.  Such  taxes  and  export  bans  are 
designed  to  protect  domestic  markets  from  short  term  supply  shortfalls  and  price  shocks. 
However, they further tighten international agricultural markets to the detriment especially of 
food importing developing countries. In a medium term perspective, such restrictions send the 
wrong  market  signal,  reducing  incentives  for  farmers  to  invest  and  increase  production  and 
contributing to imbalances on regional markets.  

The  impact  of  these  combined  developments  on  agricultural  prices  is  compounded  by  the 
relative  inelasticity  of  supply  and  demand  of  agricultural  products  in  the  short  term. 
Agricultural  production  is  seasonal,  with  a  time  lag  between  market  signals  and  producers' 
response. In recent years there has been insufficient investment in agriculture in developing 
countries. Finally, a relatively small share of global production comes onto world agricultural 
markets (16% of world wheat production is traded, 8% for dairy products and 7% for rice), 
and increasingly, this comes from a small number of exporting countries. 

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4. 

OUTLOOK FOR THE MEDIUM TERM 

Agricultural  prices  are  subject  to  cyclical  fluctuations.  Over  the  past  century,  they  have 
known  numerous  peak  periods.  The  key  question  is  whether  this  time  the  next  downward 
adjustment will be sufficient to wipe out the past increases or whether we are entering into an 
era of persistently higher levels of price for agricultural commodities.  

All  the  analysis  suggest  that  high  food  prices  are  not  a  temporary  phenomenon  but  are 
likely  to  persist  in  the  medium  term,  though  most  likely  not  at  the  record  levels  recently 
reached. The recent commodity price rises have been associated with some temporary factors, 
in  particular  weather  related  shortfalls.  Thus,  the  return  to  average  harvests  should  ease  the 
tight  situation  on  agricultural  markets  and  contribute  to  lower  food  prices.  However,  to  the 
extent  that  some  of  the  underlying  factors  are  structural  and  lasting,  there  is  likely  to  be  a 
continued imbalance between dynamic demand growth and increases in supply.  

All of this means that food prices are unlikely to fall back to pre-crisis level in the short to 
medium  term.  Forecasts  made  by  FAPRI  and  OECD  predict  that,  even  with  the  return  of 
normal  weather  conditions  and  a  return  to  normal  supply,  commodity  prices  –  in  nominal 
terms – over the medium term would average above the levels that prevailed in the past ten 
years. Any short term decline would be unlikely to last. 

Technological improvements, increases in yields and expansion of production area may help 
meet  the  demand  growth  and  reduce  price  inflation.  However,  even  assuming  constant 
favourable  climatic  conditions,  a  number  of  factors  will  limit  the  pace  at  which  production 
can  catch  up  with  demand.  Factors  like  availability  of  land,  water,  agricultural  input  prices, 
technological innovation and investment will limit the scope for increases in productivity.  

5. 

THE IMPACT WITHIN THE EU 

Rising commodity prices have contributed to higher food and headline inflation in the EU. 
Headline  inflation  in  the  EU  increased  from  1.9%  in  August  2007  to  3.8%  in  March  2008. 
Food  inflation  (excluding  alcohol  and  tobacco)  increased  from  2.7%  to  6.9%.  Similarly, 
energy inflation increased from -0.6% to 10.9%.  

However,  the  transmission  to  consumer  prices  has  been  limited  by  three  factors:  (i)  the 
appreciation  of  the  euro;  (ii)  the  declining  share  of  agricultural  raw  materials  in  food 
production  costs  compared  to  energy  and  labour  costs  (mainly  due  to  increased  processing) 
and  (iii)  the  low  share  of  food  in  the  total  household  expenditure  (today  an  average  EU-27 
household spends around 14% of its total income on food). The competitive structure of the 
food supply chain, such as the level of concentration of the retail and distribution sectors, may 
also have influenced the varying extent and pace with which increases in raw material prices 
have been transmitted to consumers in different Member States.  

In  the  case  of  bread,  the  cost  of  the  raw  material,  wheat,  accounts  for  only  5%  of  the  total 
production costs, while the main cost factors are labour, energy and capital.  

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Inflation  has  been  higher  for  processed  food  (where  raw  material  prices  account  for  a 
smaller proportion) than for unprocessed food (such as fruits and vegetables but also meat). 
In  the  EU,  inflation  in  processed  food  (including  categories  such  as  'Bread  and  cereals'  and 
'Milk, cheese and eggs', but excluding alcohol and tobacco) increased from 2.3% in July 2007 
to 9.4 % in March 2008. Inflation in unprocessed food also increased from 2.6% in September 
2007 to 4.2% in March 2008. The increase was more gradual and of a lesser extent than for 
processed  food.  The  reason  why  processed  food  has  been  more  affected  than  unprocessed 
food is that the kind of raw materials used in processed food have been those vulnerable to 
price increases (in terms of food, but also in terms of other inputs such as energy), whereas 
unprocessed  food  like  vegetables,  fruit,  and  fish  have  not  experienced  price  increases.  With 
regard  to  meat,  this  can  be  explained  by  a  time-lag  between  higher  feed  costs  through 
increased cereal prices and the resulting higher animal output prices. 

According  to  analyses  conducted  in  this  field,  the  average  increase  in  consumer  food 
expenditure in the EU 27 resulting from the rise in the prices of agricultural products between 
February  2007  and  February  2008  is  5%,  reducing  the  purchasing  power  of  an  average  EU 
household by 0.7%.  

The impact of the food price increase has  been felt differently across Member States and 
layers of the society within each Member State. Variations can be linked to Member States' 
differences in terms of market structures, consumption patterns, income levels and household 
expenditure  for  food.  While  the  increases  in  food  prices  in  EU-15  were  around  5-7%,  they 
were much higher in the new Member States (21.8% in Bulgaria and 17% in Estonia). This 
coincides  with  higher  proportion  of  expenditure  for  food  in  household  budgets.  The 
percentage of household expenditure goes from 9.06% in the UK to 41.87% in Romania. In 
addition, the poorest 20% of households spend a much higher proportion of their household 
budget on food. For example, in Romania it is 56.8%, in Lithuania 43.4%, in Bulgaria 42%, in 
Latvia  38.2%,  in  Slovakia  30.7%,  in  Hungary  27.2%.  Also  in  some  countries  of  higher 
income  level  the  proportion  spent  on  food  by  the  poorest  households  is  substantially  higher 
than  for  an  average  household  (27%  in  Italy,  23.8%  in  Spain19.9%  in  Slovenia,  20.2%  in 
Greece, 22.6% in Cyprus, 16.2% in Ireland, 14% in Germany).  

Rising  prices  have  benefited  EU  farmers  in  certain  sectors,  although  to  varying  degrees. 
Whereas, cereal  producers are benefiting from high prices, livestock producers  however are 
negatively  affected  by  the  increase  in  feedstuff  prices.  Dairy  producers  and  processors  are 
also prevented from fully benefiting from the world price increase by the constraints put on 
output increase by the quota system in place.  

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6. 

THE IMPACT AT GLOBAL LEVEL 

The impact of rising food prices on developing countries can lead to mixed results in the 
short and in the long term. Recent violent protests and food riots in Latin America, Africa 
and Asia demonstrate an immediate and dramatic impact on the world's poorest populations, 
putting  years  of  progress  towards  the  MDGs  at  risk.  In  the  longer  term,  rising  prices  could 
turn  into  an  opportunity  to  help  rural  communities  in  some  developing  countries  out  of 
poverty.  Closer  analysis  shows  that  the  impacts  vary  significantly  across  countries  but  also 
within each country.  

Developing  countries  that  are  net  importers  of  food,  such  as  in  Africa  but  also  the 
Philippines,  Indonesia  and  China,  are  the  hardest  hit  by  the  crisis.  Food  aid-dependent 
countries  which  are  also  energy  importers  are  the  most  vulnerable  to  price  increases. 
According to the FAO2, the cereal import bill of the world’s poorest countries is forecast to 
rise by 56% in 2007/2008. This follows a significant increase of 37% in 2006/2007. For low-
income  food-deficit  countries  in  Africa,  the  cereal  bill  is  projected  to  increase  by  74%.  As 
food  represent  the  most  important  share  in  these  countries'  consumer  price  basket,  a  full 
transmission  of  higher  food  prices  means  higher 
inflation,  with  possible  adverse 
macroeconomic effects on stability and/or on growth through tighter monetary policies.  

On  the  world  stage,  at  aggregate  level,  the  winners  are  net  food  exporting  countries.  In 
principle,  net  exporters  stand  to  profit  from improved  terms  of  trade.  High  world  prices  for 
food  crops  are  for  instance  benefiting  the  US  (wheat,  maize,  rice,  soy),  Argentina  (wheat, 
maize, rice, soy), Brazil (maize, rice, soy), Canada (wheat, rapeseed), Paraguay (maize, soy), 
Uruguay  (maize,  rice,  soy),  Russia  (wheat),  Thailand  (rice,  cassava)  and  Vietnam  (rice),  as 
well  as  Australia.  However,  some  of  these  countries  have  introduced  export  restrictions  to 
maintain low domestic food prices. This is the  case  for instance  of Argentina, Egypt, India, 
Pakistan, Cambodia and Ukraine. There are 20 countries with similar export restrictions.  

Few  dispute  that  the  net  welfare  effect  on  the  global  poor  is  negative,  particularly  in  the 
short  term.  While  households  that  are  net  sellers  of  food  can  gain,  net  food  purchasing 
households  suffer.  The  negative  burden  of  food  price  inflation  is  borne  by  urban  poor 
population,  but  also  by  the  rural  poor.  In  the  rural  areas  of  developing  countries,  there  are 
many  net  food  buyers  (marginal  farmers,  rural  labourers,  non-farming  households,  landless 
households dependent on remittances etc.). This group loses more than it gains. On average, 
in  a  developing  country  a  poor  household  spends  about  50-60%  of  its  budget  on  food  and 
10% for energy. Using as an example a household in Sub-Saharan Africa living on $5 a day, 
this means that $3 go on food, $0.5 on energy and $1.5 on other expenditures. A 50% rise in 
food prices means that the daily expenditure of that family for non food needs will have to be 
reduced  by  $1.5.  In  the  short  term,  if  higher  prices  have  not  led  yet  to  food  shortage,  they 
have  translated  into  greater  poverty,  malnutrition  and  increased  vulnerability  to  further 
external shocks. According to preliminary estimates from the World Bank, the surge in food 
prices could push around 100 million people into deeper poverty.  

2 

FAO, Crop prospects and food situation, no 2, April 2008. 

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In  the  medium  to  long  term,  rising  prices  offer  new  income-generating  opportunities  for 
farmers  and  could  enhance  the  contribution  of  agriculture  to  economic  growth,  although 
several factors may slow down this adjustment. High agricultural prices provide incentives for 
public  and  private  investments  and  programmes  to  improve  productivity,  reinforce 
infrastructure, spread production to marginal land and enhance the efficiency of agricultural 
markets.  This  could  have  positive  effects  across  the  whole  economy,  increasing  labour 
demand and wages in rural areas, stopping outmigration to urban areas, reducing poverty, and 
contributing to food security. However, a number of factors may slow down this adjustment. 
In several countries, some forms of government intervention reduce incentives to producers to 
invest  and  increase  their  production.  Additional  factors  are  the  geographical  location  of 
markets, their organisation, lack of information, the power of some intermediaries in the agri-
food  chain,  difficulties  in  access  to  seed,  fertilisers,  and  credit,  as  well  as  the  low  level  of 
investment in rural infrastructure in the past. All these factors are detrimental to small rural 
producers. Adjustments in the rural economy, which can create new opportunities, will take 
time to reach the poor and to increase agricultural output.  

7. 

ELEMENTS FOR AN EU RESPONSE 

At EU level, policy initiatives can pursue three complementary lines of intervention: 

(a) 

(b) 

(c) 

actions to address and mitigate short and medium term effects of the food price 
shock; 

actions  to  increase  agricultural  supply  and  ensure  food  security  in  the  longer 
term; 

actions to contribute to the global effort to tackle the effects of the price rises 
on poor populations.  

a) Actions to mitigate the effects of price increases in the short and medium term  

(1)  Monitoring  price  developments.  Given  the  volatility  and  complexity  of  the  current 
price  trends,  the  Commission  will  closely  monitor  price  developments  within  the  EU  and 
internationally and will report by the end of the year on the evolution of the situation.  

(2) 
Adjusting  the  Common  Agricultural Policy (CAP).  A  number  of  adjustments  in  the 
market  management  of  the  CAP)  have  been  recently  decided  to  mitigate  the  effects  of  the 
price increases. Intervention stocks have been sold. Moreover, three explicit steps have been 
taken  to  respond  directly  to  the  exceptionally  high  price  levels  on  cereal  markets:  First,  the 
Council decided in September 2007 to suspend for 2008 the obligation for farmers to set-aside 
10%  of  their  arable  land.  The  Council  also  agreed  unanimously  on  20  December  2007  to 
suspend  import  duties  on  cereals  with  only  few  exceptions  for  the  current  marketing  year 
(although the impact of this move might be limited, given the low level of effective tariffs). 
The Council has also decided to increase milk quotas by 2% as from 2008.  

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On  a  more  general  level,  decoupled  income  support  and  reform  of  individual  market 
organisations has already made farmers more responsive to market signals.. Several measures 
included in the Health check package adopted in parallel with this Communication, such as, 
abolition of obligatory set-aside and gradual increase in the milk quotas with a view to their 
elimination in 2015, move in this direction and should contribute to easing tight agricultural 
markets.  

(3) 
Acting  for  the  most  deprived  persons.  The  Commission  will  present  a  revised  food 
security programme for the most deprived persons. The existing most deprived persons' food 
aid programme, started in 1987, has provided annually around €300 million worth of food aid, 
reaching 13 million beneficiaries in 19 Member States.  

(4) 
Investigating the functioning of the food supply chain. The Commission will set up a 
task force to examine the functioning of the food supply chain, including concentration and 
market segmentation of the food retail and distribution sectors in the EU, and will produce a 
first  report  on  the  situation  by  the  end  of  2008.  This  will  feed,  in  particular,  into  the 
monitoring  of  the  retail  sector  established  further  to  the  Single  Market  review.  The 
Commission  will  also  continue  to  work  closely  on  these  issues  with  national  competition 
authorities  and  encourages  Member  States  which  have  or  are  planning  to  reform  restrictive 
regulation in the retail sector to continue their efforts.  

(5) 
Avoiding measures with distortionary effects. Given the strong impact of food price 
inflation on the purchasing power of households on low incomes, there is a debate in several 
Member  States  on  how  such  effects  can  be  –  temporarily  –  mitigated.  Where  short-term 
targeted  measures  are  taken  to  alleviate  the  impact  of  higher  food  prices  on  the  poorer 
sections of the population they should avoid distortionary effects. The Commission will also 
monitor such developments closely. 

(6) 
Analysing speculative investments. The Commission will monitor closely activities by 
speculative  investors  in  commodity-related  financial  markets  and  their  impact  on  price 
movements.  

b) Actions to enhance agricultural supply in the longer term  

Strengthening  the  sustainability  of  EU  policy  on  biofuels.  Further  analyses  need  to 
(1) 
be carried out to examine how the agreed EU target (10% of biofuel for transport by 2020) 
will  influence  agricultural  market  prices  and  land  use.  However,  simulations  show  that  the 
consequence of a rising share of biofuels from 1% in 2005 to 10% in 2020 is a 30 million ton 
increase  in  feedstock  use.  Taking  into  account  by-products,  this  translates  into  a  4  million 
tonne increase per year over a 15 year period. By 2020, this could mean an increase of cereal 
prices by about 3-6 per cent, rapeseed by about 8-10 per cent and sunseed 15% as compared 
to 2006, assuming a share of 30 per cent of supply is provided by second generation biofuels. 
But  these  impacts  will  be  limited  through  the  growing  use  of  second  generation  biofuels 
which is encouraged by EU policy. Second generation biofuels are produced from feedstocks 
other  than  food  crops,  and  can  come  not  only  from  dedicated  energy  crops,  but  also  from 
sources  such  as  recycled  vegetable  oils,  animal  fat,  by-products  of  forest  based  industries, 
forestry residues, solid waste and grasses. 

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Promoting  sustainable  production  of  biofuels  at  international  level.  EU  policy  on 
(2) 
biofuels  is  increasingly  seen  as  part  of  a  global  trend  to  stimulate  biofuel  production. 
Proactive  biofuel  policies  are  pursued  in  particular  by  the  US,  as  well  as  by  Brazil,  India, 
China and other countries. Based on existing policies, it is expected that by 2016 corn acreage 
for bioethanol in the US will rise to 43% of the entire national corn land harvested for grain in 
2004. The risk identified by some analyses is that the demand for biofuels would be met not 
by  taking  advantage  of  the  widespread  scope  for  productivity  increases,  but  by  displacing 
food  crops.  To  minimise  the  risk  of  this  happening  in  the  EU  a  key  feature  in  the 
Commission's proposal for a Renewable Energy Directive is the biofuel sustainability scheme, 
covering  greenhouse  gas  impacts,  biodiversity  and  land  use  impacts.  The  scheme  will  also 
include  regular  monitoring  and  reporting  on  a  wide  range  of  economic,  social  and 
environmental  impacts,  including  positive  and  negative  impacts  on  food  security.  The 
proposed  scheme  will  apply  to  both  EU  produced  and  imported  biofuels  and  is  fully 
compatible  with  the  EU's  commitments  under  international  trade  rules.  By  encouraging  the 
adoption of similar sustainability criteria by consumers and producers of biofuels outside the 
EU  and  by  actively  promoting  the  global  development  of  second  and  third  generation 
biofuels,  the  EU  can  make  an  important  contribution  to  shaping  the  future  development  of 
biofuels.  

Strengthening  agricultural  research  and  related  knowledge  generation  to  enhance 
(3) 
sustainable  productivity  growth  of  agriculture  both  in  Europe  and  in  developing  countries 
through,  for  example,  new  crop  varieties  and  improved  cropping  systems  with  higher  and 
more  stable  yields,  more  efficient  use  of  water,  greater  resistance  to  diseases  and 
environmental stress and less need for pesticides. The Commission will continue to facilitate 
co-ordination between Member States and to provide opportunities for collaborative research 
between Europe and  developing countries through the 7th Research Framework Programme. 
Furthermore,  it  will  maintain  its  strong  support  for  the  international  agricultural  research 
system (in particular the Consultative Group on International Agricultural Research, CGIAR), 
currently standing at around €32.5 million, with a perspectiv e to double it from 2008, to reach 
an average of €63 million per year for the next three years.   

(4)  Maintaining an open but vigilant GMO policy. GMO cultivation continues to spread 
in  third  countries,  and  demand  for  soybean  and  soy  meal  is  growing,  including  in  the  EU, 
where the livestock sector is highly dependent on plant proteins imports, mainly soybean and 
derived  products.  GMO  cultivation  is  limited  in  Europe,  both  for  feed  production  and  for 
biofuel production, in contrast to the fast expansion at world level. The EU legal framework 
provides for a pre-marketing authorisation of GMOs, on the basis of effective, science based 
standards for authorisation, giving the EU a strict authorisation system. The Commission will 
continue to implement this legislation, dealing with requests for authorisation, and, under the 
current particular circumstances, will pay particular attention to the issue of feed imports, in 
accordance with the procedures set out in the legislation. 

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(c) Actions to address effects of the crisis at international level 

(1) 
Continuing  to  promote  an  open  trade  policy  and  working  towards  an  early 
conclusion of the DDA. There  are  significant potential gains for developing  countries from 
the Doha Round in terms of new market opportunities, which would help generate additional 
export  income,  stimulate  agricultural  production  and  facilitate  access  to  foodstuffs,  thereby 
alleviating the current food price hikes. The EU has already autonomously granted duty and 
quota  free  access  to  least  developed  countries.  The  same  approach  is  now  extended  to  the 
ACP countries in the framework of the Economic Partnership Agreements (EPAs). The issue 
of the negative impact of export restrictions should be raised at relevant forthcoming meetings 
of the WTO and in other relevant international fora.  

(2) 
Standing  ready  to  maintain  EU  humanitarian  commitments  and  scale  up  the  EU 
contribution to the global effort to tackle the effects of the crisis on poor populations. Major 
international organisations (WFP, FAO, World Bank, IMF) are warning that a humanitarian 
crisis  could  be  looming,  caused  not  by  a  global  lack  of  food  but  by  a  deterioration  in  the 
access  to  food  for  the  world's  most  vulnerable  people.  The  impact  of  rising  food  prices  on 
food-aid deliveries has only been partially cushioned by increasing levels of donor resources. 
The WFP has called for approximately $750 million in additional financing to help maintain 
food  aid  for  its  planned  humanitarian  and  development  caseloads  in  2008,  which  has  only 
been partly met. Other UN agencies, Red Cross agencies and NGOs are similarly affected by 
increases  in  operational  costs.  The  gap  between  available  resources  and  increasingly 
expensive operations looks set to grow. In 2008, the Commission has so far mobilised €333 
million  for  short  term  assistance.  The  Commission  will  carefully  monitor  the  evolution  of 
needs for humanitarian aid, and is considering ways to mobilise additional funds to contribute 
in international organisations' ongoing or planned initiatives; and to meet possible unforeseen 
humanitarian needs from 2008 to 2010. 

(3) 
Providing through the EU development policy support for medium and longer term 
structural responses. In the longer term a supply response in developing countries can only 
come  the  strengthening  of  policies  and  investments  in  rural  development,  food  security  and 
agriculture.  EU  Development  cooperation  programmes  will  support  this  approach.  Rural 
development,  agriculture  and/or  food  security  have  been  already  selected  by  an  increasing 
number  of  African  countries  (22)  as  focal  sectors  for  support  under  the  10th  European 
Development  Fund  (2008-2013).  Community  support  in  this  area  should  reach  some  3.5 
billions  over  the  next  five  years.  The  Food  Security  Thematic  Programme  supports 
interventions  at  global,  continental  and  regional  level  to  improve  food  security  in  favour  of 
the  poorest,  which  ensure  coherence,  complementarity  and  continuity  of  Community 
interventions,  including  in  the  area  of  transition  from  relief  to  development.  Development 
cooperation responses could proceed along two lines: first, supporting safety nets, including 
direct social protection (cash) transfers for the poor (urban and rural) to enable them to cope 
with shocks and lasting high prices; and second, making agriculture a higher priority within 
development  programs,  with  measures  to  promote  productivity  increases  among  producers, 
especially small farmers. Supporting a supply response from developing countries themselves 
requires investment in the enabling environment for the sector, notably in rural infrastructure, 
as  well  as  reforms  in  agricultural  policies,  institutions  and  land  management  regimes. 
Expansion  of  investments  in  agricultural  research  programmes  is  also  key  to  raising 
agricultural productivity and to achieving food security in the medium to long term.  

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Promoting  a  coordinated  EU  contribution  to  the  international  response. The  EU 
(4) 
lends its full support to the initiatives recently launched under the UN auspices and promotes 
further  action  to  ensure  an  effective  multilateral  response,  capable  of  limiting  overlaps,and 
ensuring  maximum  efficiency  as  well  of  anticipating  similar  developments  in  the  future.A 
coordinated  approach  between  the  EU  and  its  Member  States  is  needed  to  ensure 
complementarity and division of labour. 

(5) 
Rises in food and commodity prices, if sustained over time, could have implications 
for both global and EU security, including the threat of conflicts over scarce resources and 
increased movements of people. This issue should therefore also be taken into account in the 
current re-examination of the European Security Strategy of 2003. 

8. 

CONCLUSIONS 

The  European  Commission  will  continue  to  monitor  the  evolution  of  the  situation  and  the 
reasons behind the rise in food prices. It invites the European Council to endorse the policy 
directions  put  forward  in  this  Communication  and  to  make  them  the  basis  for  tackling  the 
challenge of rising food prices within the EU and at international level.  

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