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|  | | | | Editorial | | | | What Can we Learn from the Recent Drop in Agricultural Prices?
Bastien Gibert,
Expert of momagri | |
Only a few weeks ago, the general assumption was that the surge in agricultural prices was going to last and reach a stability zone. It was indeed the opinion of Mariann Fischer Boel, European Commissioner for Agriculture and Rural Development, who applied the theory to her CAP Health Check. In this framework, the momagri model’s predictions indicating that agricultural prices volatility was going to continue––if not increase––and that an upset in prices could take place, seemed highly doubtful to all observers…. until it did happen.
Today, we are in fact witnessing not only the tapering off of soaring prices but also the emergence of a backward surge in some farming activities: since July, the quotations for major commodities on global markets are tumbling, meat prices are stabilizing and those of milk are plummeting to 2005 levels. Knowing why agricultural commodities prices underwent such changes in the past is the chief concern of experts and the media. In addition, one should note that the arguments used in the past to justify the trend for high prices are now replaced by other often-opposing arguments, and that nobody seems to mind this contradiction.
We at momagri also think that it is crucial to understand a posteriori the factors that generate price changes. But we believe that we must reach beyond the current level of analysis made by agricultural experts, who, to quote Lawrence Peter, can only “explain tomorrow why their yesterday’s forecast did not materialize today”. Indeed, it is critical to recognize, a priori and openly, why international organization and “trendy” experts cannot anticipate changes in agricultural commodities prices. Until now, the only thing on which these specialists were not mistaken when dealing with agricultural forecast, is the fact that they were wrong at every step of the way.
This situation teaches us three political and strategic lessons.
First of all, in the matter of forecast, theories that serve as bases are fundamental, and results as well as indications that can be gathered are drastically different according to medium- or long-term reasoning, by considering that price trend is linear, or according to short-term, by considering that price changes are near-chaotic. By confusing short-term variations and long-term average trends to formulate economic policies, international experts make a mistake that leads to serious consequences. What would happen if an architect applied, on a severely uneven plot, the building methods reserved for a house on a level surface? The house would quickly collapse. It is the same for agricultural markets. Yet, history shows that agriculture has always been characterized by a succession of volatility highs. That is the reason why, as stated by the agro-economist Aimery de Dinechin, we must refrain from “confusing the wave with the tide and the tide with the sea water level.” 1 Even though simplification of reality is often a necessary step toward knowledge, we must abstain from reducing present conditions to an average that bears little resemblance to reality, which is nothing more than a sequence of cumulative events.
Furthermore, the fact that no one anticipated this agricultural price upheaval testifies to the flawed quality of available tools, which do not account for agriculture’s specific characteristics or its strategic dimension. In this respect, it is urgent to develop innovative tools that do not consider price volatility as an unlikely phenomenon but, conversely, as a structural event inherent to the very working order of agricultural markets. This has led us to develop the momagri model, the world’s first model focusing on agriculture, that includes its various specific attributes, among which the volatility of agricultural prices. The first results we gathered accurately followed reality and, in particular, did forecast a price upset after mid 2008… a situation that we are currently observing. In addition, we are now setting up a ratings agency to raise public authorities’ awareness and vigilance in matters of international agricultural market changes and their consequences.
Last but not least, we must enhance the agricultural debate’s components to balance the positions of major international organizations, in which the neo-liberal ideology dictates recommendations in agricultural matters. It is indeed mind-blowing that neither the World Bank, the FAO, the European Commission and its commissioner for agriculture, nor even various think tanks such as AgResource Co 2, are currently questioning the validity of their economic policies at a time when these are based on predictions that are persistently contradicted by reality and supported by a blind belief in the benefits of market liberalization. Nearly irreversible decisions based on false hypotheses and leading to severe consequences were almost made in the case of WTO, or are in the process of being made in the case of the European CAP.
How many food crises must we deal with before we finally recognize that our forecasting tools are more than inadequate for the task at hand and that the only certainty in agriculture is the fact that the market is defined by a great volatility, thereby demanding strong regulatory policies?
1 Aimery de Dinechin, “Agricultural Prices Drop and Rural Exodus”, Le Figaro, April 18, 2008
2 AgResource Co is a Chicago-based commodities consulting firm, whose president, Dan Basse, declared in 2007 that “the era of cheap grain was over”.
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Advocating for
agricultural market
regulation and global
food governance | |
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