Made in Germany: The Business Magazine

professor for agricultural studies in Berlin.DW-TV: Let's talk a little bit more about food and prices and to do that I'm joined by a man who knows this topic very well. Harald von Witzke from the Humboldt University. He's a professor for Agricultural Economics. We just saw an example of farmers who say there is a huge disconnect on the exchanges right now. A lot of the traders -- the people doing the trading -- are not farmers themselves. Are traders the problem in this pricing problem we're seeing? Harald von Witzke: Agriculture commodity markets are very volatile. Small changes in supply and/or demand can cause significant changes in market prices. And what we are seeing right now is a clear-cut deviation from the longer-term trend triggered by a crop failure in Russia and other parts of the world. DW-TV: Well it feels like an asymmetrical shock here. We've got a shock in Russia -- and its political system shutting down exports -- and that's effecting the entire world? Harald von Witzke: The second effect is that politicians have tended in the past when prices were very high to restrict exports. We've seen that in 2007 and 2008, when prices were so very high that China, India, Argentina and some other countries restricted exports. As a consequence, prices were driven even higher than without this part. DW-TV: So you're saying the politicians are the bad guys in this? Harald von Witzke: The politicians tend to point the finger at speculators when prices are high, but in fact it's all too often political decisions that create restrictions that contribute to these price hikes. DW-TV: Let's talk numbers a little bit before we do too much politician-badgering right now. We've got a graphic to show people just how much prices have changed. Prices for wheat were stable for much of the last decade. They spiked in 2008 and are now hovering for wheat at around 370 dollars a tonne. Increased by 80 percent since June alone! Now I want to emphasize this... this has nothing to do with supply and demand, does it? Harald von Witzke: It has to do with supply and demand. As we said earlier, there has been a crop failure, a reduced supply in Russia and some other parts of the world. And there has been political action which has restricted supply to international markets. DW-TV: But professor, just because there's been a bad harvest in Russia, it doesn't mean the rest of the world can't be fed with grain and wheat. Things have gone up astronomically. It doesn't make sense! ? Harald von Witzke: Prices have gone up more than one would expect given that we have an ample supply in storage around the globe. However, the expectation is that countries and governments again do what they did in 2007 and 2008. That they restrict exports to supply their domestic populations with affordable food. As a consequence, there's less in international markets, the quantity is lower, and prices are even higher. DW-TV: So what we're ending up with is we want affordable food, but what we've got is prices actually going up as politicians try to protect their agricultural markets. Harald von Witzke: That's exactly what's happening, and it has very negative consequences for the poor and hungry of the world. We have one billion humans who are malnourished, or were malnourished in 2008. And those are humans who have $1.25 or the equivalent thereof every day in purchasing power. And if the price of food goes up significantly for these people, that can have disastrous consequences. DW-TV: Before we let you go, professor ... what would you like to see happen on these markets? Harald von Witzke: Prices won't stay as high as they are, because these high prices are an incentive for farmers around the world to produce more food. So prices will be down next year.