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What explains agricultural price movements ?

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  • Baffes,John
  • Haniotis,Tassos

Abstract

After 2005, commodity prices experienced their longest and broadest boom since World War II. Agricultural prices have now come down considerably since their 2011 peak, but are still 40 percent higher in real terms than their 2000 lows. This paper briefly addresses the main arguments on the causes of the agricultural price cycle. It broadens the scope of analysis by focusing on six agricultural commodities, and identifies the relative weights of key quantifiable drivers of their prices. It concludes that increases in real income negatively affect real agricultural prices, as predicted by Engel's Law. Energy prices matter most (not surprisingly, given the energy-intensive nature of agriculture), followed by stock-to-use ratios and, to a lesser extent, exchange rate movements. The cost of capital affects prices only marginally, probably because it not only influences demand, but also evokes a supply response.

Suggested Citation

  • Baffes,John & Haniotis,Tassos, 2016. "What explains agricultural price movements ?," Policy Research Working Paper Series 7589, The World Bank.
  • Handle: RePEc:wbk:wbrwps:7589
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    References listed on IDEAS

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    1. Bruce Gardner, 1981. "On the Power of Macroeconomic Linkages to Explain Events in U.S. Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 63(5), pages 871-878.
    2. Carmen M. Reinhart, 1991. "Fiscal Policy, the Real Exchange Rate, and Commodity Prices," IMF Staff Papers, Palgrave Macmillan, vol. 38(3), pages 506-524, September.
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    Cited by:

    1. Jasper Grashuis, 2018. "An Exploratory Study of Cooperative Survival: Strategic Adaptation to External Developments," Sustainability, MDPI, Open Access Journal, vol. 10(3), pages 1-15, February.
    2. Dániel Fróna & János Szenderák & Mónika Harangi-Rákos, 2019. "The Challenge of Feeding the World," Sustainability, MDPI, Open Access Journal, vol. 11(20), pages 1-18, October.
    3. Jabbar, Mohammad A., 2016. "Estimation of private stock of food grains in Bangladesh: Data sources and methodological issues," Research Reports 251966, International Livestock Research Institute.
    4. Santeramo, Fabio Gaetano, 2017. "Market Fundamentals And International Grain Price Volatility," 2017 International Congress, August 28-September 1, 2017, Parma, Italy 260908, European Association of Agricultural Economists.
    5. Tiziano Distefano & Guido Chiarotti & Francesco Laio & Luca Ridolfi, 2018. "Spatial distribution of the international food prices: unexpected randomness and heterogeneity," SEEDS Working Papers 0118, SEEDS, Sustainability Environmental Economics and Dynamics Studies, revised Jan 2018.
    6. Eissa, Mohamad Abdelaziz & Al Refai, Hisham, 2019. "Modelling the symmetric and asymmetric relationships between oil prices and those of corn, barley, and rapeseed oil," Resources Policy, Elsevier, vol. 64(C).
    7. Fabio G., Santeramo & Emilia, Lamonaca, 2018. "On the Drivers of Global Grain Price Volatility : an empirical investigation," MPRA Paper 86795, University Library of Munich, Germany.
    8. Santeramo, Fabio Gaetano & Lamonaca, Emilia & Contò, Francesco & Stasi, Antonio & Nardone, Gianluca, 2017. "Drivers of grain price volatility: a cursory critical review," MPRA Paper 79427, University Library of Munich, Germany.
    9. Stephan Brosig & Thomas Glauben & Inna Levkovych & Sören Prehn & Ramona Teuber, 2016. "Are We Moving Towards Functioning Agricultural Markets and Trade Relations?," Journal of Agricultural Economics, Wiley Blackwell, vol. 67(3), pages 677-684, September.
    10. Cornelis Gardebroek & Jeffrey J. Reimer & Lieneke Baller, 2017. "The Impact of Biofuel Policies on Crop Acreages in Germany and France," Journal of Agricultural Economics, Wiley Blackwell, vol. 68(3), pages 839-860, September.
    11. Esposti, Roberto, 2017. "What Makes Commodity Prices Move Together? An Answer From A Dynamic Factor Model," 2017 International Congress, August 28-September 1, 2017, Parma, Italy 260889, European Association of Agricultural Economists.

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