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
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Author: Imre Fertő Supervised by Imre Fertő
June 2011
Week 1 Introduction
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
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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”
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Food Markets
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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
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• Sequential nature of food production
• 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
• 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
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The share of agriculture in GDP versus per capita GDP
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
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The share of agriculture in total employment 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)
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“The right price of food”
• Timmer (1986): Getting food price right
• Reconsidering this issue in the light of recent food crisis in
• What do data tell us?
– The agricultural prices went down in long run
– But, suddenly high price peak of agricultural commodities in 2006–2008
11 – Two questions:
– How can we explain the recent price increase in 2006–2008?
– What is the right price of food now? (Swinnen 2010)
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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”
• After crisis: IFPRI (2008):
– “In 2007, longstanding disruptions to the world food equation became widely
13 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)
