How much have domestic food prices increased in the new era of higher food prices? David Dawe n , Cristian Morales-Opazo, Jean Balie, Guillaume Pierre Agricultural Development Economics Division, Food and Agriculture Organization of the United Nations, Rome, Italy article info Article history: Received 10 September 2014 Received in revised form 12 January 2015 Accepted 14 January 2015 Keywords: Domestic food prices Food price crisis Rice Wheat Maize World food markets abstract Analysis of domestic price data (adjusted for inflation) from a large range of low- and middle-income countries shows that domestic staple food prices were higher in 2013 than they were in the first half of 2007: consumption-weighted real domestic rice, wheat and maize price indices increased by 19, 19 and 29 percent, respectively. The domestic price indices broadly follow world price movements, but domestic price changes are attenuated to an important extent due to government policies, transport costs, changes in exchange rates and other factors. While world price changes thus overstate the impact on food security of farmers and consumers, the observed increases in domestic prices are still substantial for the poor. Domestic price changes have varied widely across countries, and the changes in any particular country are not necessarily due to changes in world market prices. & 2015 Published by Elsevier B.V. 1. Introduction There have been major changes in the world food economy over the past few years: oil prices were substantially higher from 2008 to 2013 than they were in the preceding two decades, biofuels demand has grown (see de Gorter et al., 2013; Tyner, 2013 for differing views on how important this has been for the level of grain prices) and price volatility seems to have increased (with two major cereal price spikes, one in 2007–2008 and one in 2010–2011). At the same time, population growth continues (albeit at a slower growth rate than in the past), scarcity of natural resources such as land and water is getting worse, urbanization is reducing labour supplies in the countryside and economic growth in developing countries is leading to greater demand for livestock products that require large quantities of cereal as feedstock (Conforti, 2011). Last, but not necessarily least, climate change presents major uncertainties for agricultural production. These trends have led many to suggest that we are in an era of higher and/or more volatile food prices (e.g., Naylor and Falcon, 2010; Dupont and Thirlwell 2009; Irwin and Good, 2009; OECD, 2014). When discussing higher food prices, reference is typically made to world prices denominated in US dollars. For developing coun- tries, world market prices are crucially important for import bills, foreign exchange earnings, and as signals to guide resource alloca- tion. But it is well-known that changes in world market prices are not always transmitted into changes in domestic prices due to transport costs, government policies, changes in exchange rates and market failures such as imperfect information (Hassouneh et al., 2012; Conforti, 2004; Timmer, 1993; Dawe, 2009; Minot, 2010, Rapsomanikis, 2011; Short et al., 2014; Baquedano and Liefert, 2014). Furthermore, it is domestic prices that affect poverty and welfare, because these are the prices actually received by farmers and paid by consumers. These observations suggest that it is important to understand the behaviour of domestic food prices in addition to global prices, in particular since the world food crisis of 2007–2008. 1,2 When analyzing food prices, it is particularly important to understand the behaviour of cereal prices (as distinct from prices of meat, dairy, fruits, vegetables and other foods), because cereals are the most important expenditure item for the poor and food insecure, typically accounting for 50 percent of dietary energy supply and 20–25 percent of total expenditures for people in the bottom quintile of the income distribution (FAO, 2011). In addition, even though cereals are often missing many key micronutrients, cereal prices are crucial for nutrition because higher cereal prices can crowd out expenditures on more nutritious foods such as eggs, milk and green leafy vegetables (Block et al., 2004; Torlesse et al., Contents lists available at ScienceDirect journal homepage: www.elsevier.com/locate/gfs Global Food Security http://dx.doi.org/10.1016/j.gfs.2015.01.001 2211-9124/& 2015 Published by Elsevier B.V. n Corresponding author. 1 Just like world prices, domestic prices also influence resource allocation. 2 We do not address the impact of food prices on poverty, which has been addressed elsewhere (Barrett and Bellemare, 2011; Ivanic et al., 2011; Robles and Torero, 2010; Headey, 2014; Dawe et al., 2010; Dorward, 2012). Global Food Security 5 (2015) 1–10