What Explains Agricultural Price Movements?

25 Pages Posted: 20 Apr 2016

See all articles by John Baffes

John Baffes

World Bank

Tassos Haniotis

European Union - European Commission

Date Written: March 1, 2016

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.

Keywords: Rural Development Knowledge & Information Systems, Community Based Rural Development, Rural Communities, Agricultural Economics, Rural Development Strategy & Policy, Regional Rural Development

Suggested Citation

Baffes, John and Haniotis, Tassos, What Explains Agricultural Price Movements? (March 1, 2016). World Bank Policy Research Working Paper No. 7589. Available at SSRN: https://ssrn.com/abstract=2740842

John Baffes (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/jbaffes

Tassos Haniotis

European Union - European Commission ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

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