Assembly/AU/ 7 (X)I Page 2 also as an opportunity. Net-exporting countries and net-sales households will usually benefit from rising prices, if the price signals are transmitted properly to the producers. Increased prices can raise incomes, induce an expansion in production and encourage additional investments in productive assets. (b) Causes of High Food Prices 3. Five main reasons explain the increase in food prices. i. ii. iii. iv. v. (c) World cereal production fell by 3.6 percent in 2005 and 6.9 percent in 2006 due to bad weather in major producing countries, such as Australia. Stock levels are very low, which magnifies the impact of production shortfalls as markets worry about the lack of a buffer. Petroleum prices and food prices are highly correlated, with an estimated correlation coefficient of more than 0.6. The rapid rise in petroleum prices exerted an upwards pressure on food prices as fertilizer prices nearly tripled and transport costs doubled over a two-year period. Increased demand from the bio-fuels sector also tended to push prices upwards. It is estimated that about 100 million tons of grain (some 4.7 percent of global cereal production) are being used for bio-fuels in 2007/8. In 2007/8, the United States alone is expected to use about 80 million tons of maize to produce ethanol, a 37 percent increase over the previous year. Economic growth in some large developing countries is leading to changes in diet and increased demand for food crops. Over the last 15 years, meat consumption more than doubled in China and grew by 70 percent in Brazil and 20 percent in India. Since it takes some 7 kg of cereals to produce 1 kg of meat, this shift in diet is also leading to higher cereal prices. Long-Term Global Trends of High Food Prices 4. The prices of many food commodities have increased since 2001, and particularly steeply in 2007 and 2008 (see Figure 1). The current hike in food prices distinguishes itself from previous ones in its duration and breadth. The increase has affected nearly all food commodities, although to different degrees. Price volatility has increased as well.