A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Pierre Pagesse.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
Editorial

On agricultural markets, a sole certainty in 2009: price volatility




Momagri’s Editorial Department


The CyclOpe circle1, which handed in its 2009 price evolution forecasts for raw materials on Wednesday 28 January, believes that 2009 will be another prosperous year for agricultural products, as opposed to all the other raw material categories. Philippe Chalmin, director of the CyclOpe circle thought it was right to assert, based on his presentation that « after a year such as 2008, it has become rather easier to predict the trend » 2 . It is daring, especially being aware of previous-year announcements refuted by the facts.



According to the latest forecasts by the CyclOpe circle, most of raw materials aught to suffer directly from the downward trends imposed by world recession and the drop in the demand for raw materials for industry, except agricultural raw materials : whereas the report forecasts a yearly price decrease of at least 10% as a general rule (-50% for petrol, -60% for iron ore), 4 products are not subject to the rule : wheat, which price is likely to stabilise around the current level, cacao (+8%), corn (+12%) and finally sugar which price is likely to increase by +23%. Among the reasons suggested the decrease of cultivated soils, unfavourable climactic conditions (particularly in Argentina) and the higher demand for ethanol.

A few months ago, shortly after the paroxystic food crisis, these forecasts could have gone unnoticed in the midst of a series of similar forecasts. We can indeed recall that then, there were numerous experts to assert that raw material prices would stabilise at levels nearly as high as those measured at the peak of the crisis. Such was noticeably the FAO’s, the World Bank’s and Mariann Fisher Boel, European Commissioner for Agriculture’s opinion. This was but a linear vision of the future, whereas since then raw material prices collapsed, and are now slightly increasing again. It’s therefore worth remaining prudent and counting on a much more chaotic world, as the European Parliament points it out in one of its latest resolutions. Little by little projective forecasting capabilities have been wisely questioned.

However, not all have re-evaluated their prospective approach – and Cyclope’s casualness in delivering its latest forecast is the best possible evidence of this. Hence, in these troubled times a single certainty appears however: uncertainty. Or, to paraphrase Socrates, the only thing we know is that we know nothing. A single example shows more than anything else the uncertain climate characterising the current situation: in October 2008 the International Monetary Fund (IMF) delivered a 2009 world growth estimate of close to 3%; 3 months later, in January 2009, it reconsidered its estimated rate and only indicated 0.5% - or a near-stop to the world economy, as O. Blanchard Chief Economist of the IMF pointed it out.



In all respects, the only certainty we can afford concerning agricultural markets price evolution relates to price volatility. To know by how much prices will increase or decrease remains more than ever a wager as far as traditional models are concerned; as indicated, by the way, by a technical observation note from the Ministry of Agriculture and Fishing on July 25th 2008, “any volatility would imply upside and downside events; the key questions being the amplitude of variations, of their relative expected median point and their long term trends”.

That is why the momagri model, revolutionary in its approach, is essential. A simulation model and not, frankly speaking, a forecasting model, it specifically allows the evaluation of the effects of some factors on price variations based on a given scenario and some distinct hypothesis. Thereby, it provides us with an idea on future price evolutions and, to a large extent, helps to reduce uncertainty.

The very first simulations made in 2008 helped in showing that cereal prices were likely to drop rapidly, when everybody was actually betting on prices remaining at a high level. They also demonstrated that, in the case of a non-regulated liberalisation of agricultural market exchanges, agricultural price volatility could increase, at a moment when most experts were denying the effect of speculation on prices. Since then, a consensus seems to have been reached on the existence of an important volatility and the amplifying effect of speculation. Notwithstanding, none of the models used, other than the one of momagri, were accordingly amended.

The second set of simulations, currently being run, should allow the determination of probable agricultural market price evolutions and for the very first time, the effect of a non-regulated revenue liberalisation, in particular of poor-country farmers. These results will certainly be much more interesting, for they measure the great market variability resulting from the human impact…And from the growing poverty in the world. It is an essential step forward.


1 Set up and run since 1985 by the economist Philippe Chalmin, the CyclOpe circle is a prospective and forecasting group bringing together a certain number of French experts specialised in raw materials.
2 Quoted by les Echos, « Only agricultural products will escape recession, according to CyclOpe », 29/01/2009
3 Résolution non législative McGuinness, « Politique agricole commune et la sécurité alimentaire mondiale », votée le 13/01/2009
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Paris, 24 November 2014