AGRICULTURAL PRICES
AND MARKETS
AGRICULTURAL PRICES AND MARKETS
Sponsored by a Grant TÁMOP-4.1.2-08/2/A/KMR-2009-0041 Course Material Developed by Department of Economics,
Faculty of Social Sciences, Eötvös Loránd University Budapest (ELTE) Department of Economics, Eötvös Loránd University Budapest
Institute of Economics, Hungarian Academy of Sciences Balassi Kiadó, Budapest
AGRICULTURAL PRICES AND MARKETS
Author: Imre Fertő
Supervised by Imre Fertő June 2011
ELTE Faculty of Social Sciences, Department of Economics
AGRICULTURAL PRICES AND MARKETS
Week 1
Introduction
Imre Fertő
Literature
• Swinnen, JF. M. (2010): The Right Price of Food: Reflections on the Political Economy of Policy Analysis and Communication. Katholieke Universiteit Leuven. Licos Discussion Paper,
25910
• FAO (2009): The state of agricultural commodity markets 2009. Rome
• Timmer, C. P., Akkus, S. (2008): The Structural Transformation as a Pathway out of Poverty:
Analytics, Empirics and Politics. Center for
Global Development, Working Paper, no. 150
Some important links to datasets
• Database
– http://data.worldbank.org/
• http://data.worldbank.org/data-catalog/world- development-indicators/
– http://cies.adelaide.edu.au/agdistortions/database/
report/
– http://epp.eurostat.ec.europa.eu/portal/page/portal /eurostat/home
– http://datacentre.chass.utoronto.ca/pwt/index.html – http://www.ers.usda.gov/Data/FATUS/
– http://portal.ksh.hu/
Outline
• The system of food markets
• Characteristics of food markets
• Characteristics of food systems
• Issues of food systems
• Structural change in agriculture
• Food for thought: A case study on the
“right price of food”
Food markets
Factor markets Input markets
Farm product markets
Retail markets Farmers
Processors
Distributors and retailers
Wholesale markets International
trade
Consumers
Characteristics of food markets
• Primary commodity markets
– Competitive markets characterised by volatility, declining terms of trade and weak bargaining power of producers
• Factor markets
– Missing markets (environment, agricultural research), regulation of competing uses (land)
• Input and food wholesale markets
– Concentrated markets, concerns about market power
• Food retail markets
– Changing consumer behaviour, asymmetry of information, food safety, advertising
• International trade markets
– Level playing field?, fair trade, global supply chains
Common features of food systems around the world
• Spatial dispersion of production
• Differences in scale of production
across vertical levels in the food system
• Sequential nature of food production
Common features of food systems around the world
• Uncertainty of production
• Seasonality
• Perishability
• Increasing international integration
• Important public-sector roles
Common food system problems
• Price instability due to both supply and demand shocks
– (more at farm level than consumer level in industrialized economies)
• Chronic inadequate access to food by many low-income households
Common food system problems
• Importance of macro policies on food system
• Negative attitudes towards “market intermediaries”
• High cost of direct government buying &
selling activities:
– Perception that neither the market nor the state works well
Structural changes in food systems
• Decrease in relative role of farming in the economy (% of GDP, employment)
• Movement away from household-level production to a more integrated
economy
• Linking farmer and others in the food
system to the information system of the wider world
0 10 20 30 40 50 60 70
0 4000 8000 12000 16000 20000 24000 28000 32000 36000 40000
GNP per capita
Agricutural as a share of GDP
The share of agriculture in GDP
versus per capita GDP
0 10 20 30 40 50 60 70 80 90 100
0 5000 10000 15000 20000 25000 30000 35000 40000 45000 GNI Per Capita (US$ 2002)
Agriculture's Share of Total Employment (Percentage 2002)
The share of agriculture in total
employment versus per capita GDP
“The right price of food”
• Timmer (1986): Getting food price right
• Reconsidering this issue in the light of recent food crisis in 2006–2008
• What do data tell us?
– The agricultural prices went down in long run – But, suddenly high price peak of agricultural
commodities in 2006–2008 – Two questions:
– How can we explain the recent price increase in 2006–2008?
– What is the right price of food now? (Swinnen 2010)
How can we explain “correctly”
the changes in food prices?
• Before crisis: FAO (2005):
– “The long-term downward trend in agricultural commodity prices
threatens the food security of
hundreds of millions of people in some of the world's poorest
developing countries where the sale of commodities is often the only
source of cash”
How can we explain “correctly”
the changes in food prices?
• After crisis: IFPRI (2008):
– “In 2007, longstanding disruptions to the world food equation became widely evident and
rapidly rising food prices began to further
threaten the food security of poor people around the world. … The current food-price crisis can have long-term, detrimental effects on peoples’
health and livelihoods, and can contribute to the further impoverishment of many of the world’s poorest people.”
Explanation?
• Swinnen (2010):
– Mass media and political communication
• the impact of stories that appear in the mass media on the actions (analysis and policy focus) of the
organizations
• the desire of the organizations to appear in mass media in order to achieve their objectives
– Several characteristics of mass media are relevant to explain these mechanisms
• the agenda setting effect of the media in international and aid policy (CNN factor)
• media attention is typically concentrated around “events”
or “shocks
• media reports concentrating on negative (development) effects (“bad news” hipothesis)
