Assembly/AU/ 7 (X)I Page 4 6. Global stocks in cereals have been declining as demand has outstripped supply in recent years. Cereal stocks reached their lowest levels in more than two decades. Low stocks have contributed to price volatility, which has been relatively high in recent years. Higher transportation costs also have contributed to price volatility. The recent increase comes after a prolonged decline in the prices of many agricultural commodities, reaching historic lows in the late 1990s. Cereal prices had been declining because productivity benefited from the Green Revolution, while demand growth had been slowing down as a result of lower population growth, persistent poverty in some countries and the reaching of medium to high levels of cereal consumption in other countries, such as China. II. IMPACTS AND IMPLICATIONS OF HIGH FOOD PRICES (a) Impacts on national and regional economies 7. Rising global food prices affect countries differently depending on whether they are net exporters or importers of food. Net-exporting countries will benefit and experience higher terms of trade. Net-importing countries, on the other hand, will face lower terms of trade and a larger food import bill. African countries are generally net-food importers, suggesting that higher food prices have led to an overall loss of their terms-of-trade. In addition, most African countries are net fuel importers. They have, therefore, faced higher oil import costs on top of higher food import costs. Rising fuel costs are also contributing to the rising food prices through their impact on freight and transportation costs. For example, the cost of transportation for WFP shipments from Beaumont Texas to Djibouti was up by 55 percent between December 2006 and February 2007. 8. Rising world food prices lead to an increasing vulnerability of food importing developing countries. Imports of food as a “safety valve” when countries suffer from a domestic production decline have a dampening effect on prices. But rising international prices and export restrictions have made this safety valve more difficult to operate. Many countries such as Argentina, Egypt, India, Kazakhstan, Russia, Ukraine and Vietnam, have imposed export taxes, export bans or export restrictions. With few exceptions, most African countries tend to pursue restrictive food trade policies (such as import tariffs and bans on exports) and this limits the transmission of changes in international prices. Low transmission would seem to be beneficial in the case of rising prices (by shielding domestic consumers from rising food prices), but it can also be disadvantageous because benefits of lower international prices will not benefit consumers in importing countries. More generally, it can prove expensive to the treasury and cause structural distortions and cause long-term disincentives to domestic production and trade, which ultimately can be much more damaging to food supplies and food prices. 9. In developing countries, food typically accounts for a large share of the consumer price index, hence rising food prices will lead to increasing inflationary pressure. Overall inflation is expected to increase in Africa from 6.4 percent in 2006 and 6.3 percent in 2007 to 7.5 percent in 2008 with over 10 countries expected to have double digit inflation rates.