Shocks in economic growth = shocking effects on agricultural markets?

Projections on the development of agricultural commodity markets underlie a given set of assumptions on economic growth. However, recent economic and financial crisis, as well as signs of quicker recovery in emerging economies, increase uncertainty in the forecasts of macroeconomic developments. This paper analyses the effects of different economic growth scenarios on agricultural commodity markets. In particular we assess the potential impacts of a faster economic growth in emerging economies on the one hand and of a replication of the recent economic downturn on the other hand. The empirical analysis uses the AGLINKCOSIMO model and builds upon the recently published European agricultural outlook of the EU Commission. The simulation results demonstrate that higher economic growth influences demand more than supply, resulting in higher world market prices. Emerging economies tend to import more and stock less in order to cover their demand needs, while the rest of the world increases its exports. In total the ending stocks decrease and combined with the increased consumption, the stock-to-use ratio decreases. Replication of an economic downturn affects the markets differently, depending on how elastic or inelastic the markets react to price signals. Livestock markets appear more stable and do not regain their baseline levels within a 5-year period. The magnitude of the effects is smaller the longer the simulated time path is and certainly depends on the introduced shock.