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The harmful effects of agricultural price volatility
Lucien Bourgeois
Lucien Bourgeois is a renowned figure in the agricultural sector. Economist, expert on the Common Agricultural Policy, Member of the Academy of Agriculture and former Advisor to the Chairman of the Permanent Assembly of Chambers of Agriculture (APCA), he is one of France’s most expert observers of agricultural markets.
Already author of several books including Food Security, a Matter of State published in 2007, in a recent editorial published in the Paysan newspaper No. 323 September-October 2010, he reminds us of the causes and consequences of excessive agricultural price volatility and informs us of the solution he considers most relevant. Advocating a return to policies for food stocks, Lucien Bourgeois believes that state intervention is crucial in case of a collapse in prices.
The momagri editorial board
Last August, the global price of wheat increased by nearly 70% from the previous month. As with the surge in 2007, one can find plausible explanations for this phenomenon. In particular, the decline in production due to drought this summer in Russia, Ukraine and Kazakhstan, countries that have become significant exporters, and herald a severe global shortage in the coming months.
And yet it is not clear: in the middle of August, the State Department of Agriculture of the United States estimated the world wheat crop this season at 647.7 million tons, down 5% compared to the previous season and only 2.3% for all cereals. It remains the third largest in history. In theory, not enough, to lead to panic even if it has been demonstrated that, given the inelasticity of agricultural markets, it is these few percentages that constitute the instability.
In fact, it is the decision by Russia to ban exports until the end of the year that caused panic on the markets, left reeling and without safeguards.
In our developed countries, it is the industrialists who use corn or wheat flour who suffer most from these price increases which they cannot pass on to consumers. Breeders too, who, in some areas have suffered drought which has reduced their forage resources.
But it is mainly consumers in poor countries and the poorest people in rich countries who, as with every price rise, will suffer the consequences the hardest, whilst waiting for the next drop in world prices ... which is rarely fully reflected on consumers.
There will never be enough emphasis on the harmful effects of agricultural price volatility: too low and farmers are unable to earn a living and are therefore unenthusiastic to produce. Too high and they block access to food for the poorest populations. Thus, the increase seen in 2007-2008 has increased the number of people who suffer from hunger in the world from 850 million to one billion people.
Is there another way?
The world is relatively powerless when faced with natural catastrophes and these may even increase if global warming continues.
But it is possible to limit the volatility of world prices with a food storage policy. This is incidentally what was happening before the European Union and the United States abandoned this policy for budgetary reasons. The setting up of strategic food security stocks, as we continue to propose in the Paysans newspaper, would reduce the risk of famine and regulate markets. This would provide producers with a minimum of security and encourage them to produce.
Meeting the global food challenge is agronomically possible. World cereal production continues to rise faster than population growth, particularly in Asia.
However, in thirty years, cereal exports increased by only 15% whilst production increased by 70%. The global market is losing its importance. It represents only 18% of the total production of wheat, 10% of corn and 7% of rice. How can a decreasingly representative global market serve as a reference?
Speculative derivatives must also be stopped. This applies to all our economies which are undermined by a financial sector difficult to control. So why not start by limiting speculation on food products? This is the approach taken by three of our ministers with the Commissioner Michel Barnier. The European Commission would make a beneficial contribution to the whole world if it succeeded with this objective.
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Advocating for
agricultural market
regulation and global
food governance | |
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