Explaining and anticipating agricultural price volatility have lately become the objectives chiefly targeted by agricultural experts. Undoubtedly, the current environment––distinguished by high volatility, significant economic turmoil and successive meetings of the heads of G20 nations to curb related excesses––has something to do with it.
The first difficulty encountered by experts is identifying the destabilizing factors and transmission channels that carry instability to various markets and economic sectors. As a matter of fact, price fluctuations have, for several years, no longer solely resulted from the gap between an unyielding supply and a growing demand, due to the lone occurrence of extreme climate hazards. The globalization of economies, trade liberalization, financialization of agricultural commodity markets and development of interconnections between economic sectors have highlighted additional high-potential destabilizing factors, such as exchange rates, interest rates, special microstructures of some markets where a minority segment of global output is the subject of international trade, farmland acquisitions, biofuels, players’ psychology, and of course, speculation.
The list is a long one, and if everybody––with the exception of some diehard economists––now acknowledges the structural nature of agricultural price volatility, no one is able to accurately and proportionately explain a posteriori (and let’s not even talk about a priori) which are the factors instrumental in a given price spike or a given price drop, as was the case during the 2008 food crisis.
Let’s not forget that excessive price volatility is only the visible symptom of a more serious and more diffuse disease. In the financial crisis, subprime mortgages were promptly held responsible, and concrete and global measures were initiated to curb both their development and impact. As far as agriculture is concerned, matters are unfortunately less obvious, even if the massive increase of unfettered speculation in opaque and unregulated markets has been recorded since 2004.
The second difficulty encountered by experts lies in the nature and dosage of the “medicinal” mixture to be prescribed, since we very well know that numerous risks can be generated by inappropriate treatments, and in the perils from a lack of treatment, as it is always suggested by some experts who see a miracle remedy in more advanced and unregulated trade deregulation.
The current period is critical and offers a unique opportunity to delve further into the issues covered in so many debates and discussions between economists throughout the centuries, and to recommend new tools to analyze markets. While the formation of a consensus between experts on these issues still remains utopian, some observations can already be confirmed, such as the detrimental consequences of excessive price volatility on agricultural and food stability, and the urgency to improve general market operations by striving to implement better control of speculation. Because if speculation is not the sole destabilizing factor, trying to regulate it will assist the international community in initiating a virtuous process, whose key purpose will be to tackle structural imbalances that breed speculation.
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