Monitor Vol 39 08_Final_Nov08.pdf - tips

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Supply and demand changes do not fully explain the price increases. Financial investors are becoming increasingly interested in rising commodity prices, and speculative transactions are adding to increased commodityprice volatility. In 2006, the volume of traded global agricultural futures and options rose by almost 30 percent. Commodity exchanges can help to make food markets more transparent and efficient.They are becoming more relevant in India and China, and African countries are initiating commodity exchanges as well, as has occurred in Ethiopia, for example (Gabre-Madhin 2006). 2. Outlook on Global Food Scarcity and Food-Energy Price Links 2.1 Cereal and Energy Price Increases World cereal and energy prices are becoming increasingly linked. Since 2000, the prices of wheat and petroleum have tripled, while the prices of corn and rice have almost doubled (Figure 6). The impact of cereal price increases on food-insecure and poor households is already quite dramatic. For every 1-percent increase in the price of food, food consumption expenditure in developing countries decreases by 0.75 percent (Regmi et al. 2001). Faced with higher prices, the poor switch to foods that have lower nutritional value and lack important micronutrients. Due to government price policies, trade restrictions, and transportation costs, changes in world commodity prices do not automatically translate into changes in domestic prices. In the case of Mexico, the margin between domestic and world prices for maize has ranged between 0 and 35 percent since the beginning of 2004, and a strong relationship between domestic and world prices is evident (Figure 7). In India, the differences between domestic and international rice prices were greater, averaging more than 100 percent between 2000 and 2006. 4 While domestic pricestabilization policies diminish price volatility, they require fiscal resources and cause additional market imperfections. Government policies also change the relationship between consumer and producer prices. For instance, producer prices of wheat in Ethiopia increased more than consumer prices from 2000 to 2006 (Figure 8). Though international price changes do not fully translate into equivalent domestic farm and consumer price changes because of the different policies and trade positions adopted by each country, they are in fact transmitted to consumers and producers to a considerable extent. The prices of commodities used in biofuel production are becoming increasingly linked with energy prices. In Brazil, which has been a pioneer in ethanol production since the 1970s, the price of sugar is very closely connected to the price of ethanol (Figure 9). A worrisome implication of the increasing link between energy and food prices is that high energy-price fluctuations are increasingly translated into high food-price fluctuations. 91 Trade & Industry <strong>Monitor</strong> Figure 6: Commodity prices (US$/ton), January 2000–September 2007 400 80 Commodity Prices (US$/ton) 300 200 100 60 40 20 Oil 0 0 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Source: Data from FAO 2007c and IMF 2007b; in current US $. Corn Wheat rice oil(right scale) The World Food Situation: new driving forces and required actions
Food Policy Table 4: Consumption spending response (%) when prices change by 1% (“elasticity”) Low-income countries High-income countries 92 Trade & Industry <strong>Monitor</strong> Food -0.59 -0.27 Bread and cereals -0.43 -0.14 Meat -0.63 -0.29 Dairy -0.70 -0.31 Fruit and vegetables -0.51 -0.23 Source: Seale, Regmi, and Bernstein 2003. Figure 7: Domestic and world prices of maize in Mexico (January 2004 = 100) 160 140 (Jan 2004 = 100) 120 100 80 60 Jan-04 May-04 Sept-04 Jan-05 May-05 Sept-05 Jan-06 May-06 Sept-06 Jan-07 May-07 Sept-07 Note: Domestic prices represent producer prices for the national market in Mexico. Source: Data from Bank of Mexico 2007 and FAO 2007c. Mexico maize World maize Figure 8: Producer and consumer prices of wheat in Ethiopia (2000 = 100) 180 160 140 (2000 = 100) 120 100 80 60 40 20 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Wheat producer Wheat consumer Note: Consumer prices represent wholesale prices in Addis Ababa, and producer prices are national farmgate prices. Source: Data from Central Statistical Agency of Ethiopia 2007 and Ethiopian Grain Trade Enterprise 2007.
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TIPS T R A D E & I N D U S T R Y M
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TIPS Executive director: Stephen ha
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trade policy 1 Why OECD countries s
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Table 1: EU and U.S. Examples of Re
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Table 3: Preferences and Utilizatio
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The third result implies that the s
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where “NAFTA markup” is the per
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exports toward already high levels
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in a multiregional trade model. Des
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value added in least developed econ
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11. The decline in exports to the p
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trade policy 19 Global Trade Models
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depending on whether or not the dat
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Although these three studies examin
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countries are vulnerable to trade s
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OECD data, Gurgel et al. (2006) sho
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The credibility of CGE models will
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9th Annual Conference on Global Eco
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industrial policy 33 Industrial Pol
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1991-2004 when South Africa’s per
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of clothing and textiles 14 . These
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will need to be embodied in new wel
Page 46 and 47: Second, the constraints imposed by
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