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Category: Agriculture

Published April 17, 2012

Commodity Exchanges, Commodity Speculation, and Food Security in Africa

The Floor of the Chicago Board of Trade

A farmer lives with two time horizons in mind. One is the months-long growing seasons his crops abide by. The other is the immediate reality of having to feed his family each day, regardless of the price of grain at harvest in three months, whether a drought will wither plants in the field, or whether perfect rains will yield a bumper crop.

Across rural Africa, such uncertainty hounds smallholder farmers—which is nearly everyone. In Ethiopia, 80 percent of the population of more than 80 million are small-scale farmers and produce 95 percent of the country’s agricultural output.

If more and better information within agricultural markets can make uncertainty recede like darkness in front of a candle, the Ethiopian Commodity Exchange is a bank of high-powered floodlights. A commodity exchange that broadcast crop prices to rural farmers not only helps them get higher prices for their produce, but also improves the food distribution system to resist shortages in times of drought.

That’s from a recent article in GOOD magazine by Tate Watkins.

The article discusses the potential for commodity exchanges to improve food security in Africa. In a nutshell, at times of impending food scarcity, commodity exchanges can help by raising food prices, which can help avert food crises and famines. This helps food consumers by improving their food security.

But commodity exchanges can help food producers by smoothing prices over time. That is, commodity exchanges can help reduce the uncertainty over the prices farmers will face come harvest time, which in turn leads farmers to making more efficient production decisions.

What about Commodity Speculation?

This is in stark contrast with the oft-touted “fact” according to which commodity speculation caused the food crisis of 2008. If you are interested in commodity speculation, see this Energy Economics article by Scott Irwin and Dwight Sanders, in which the authors argue that there is little to no causal evidence that commodity speculation led to the 2008 spike in food prices.

Tate interviewed me for the GOOD magazine article quoted above, and one of the things I said ended up making it to the article. I will always be grateful to Tate for bringing to my attention the Kansas City Star‘s style guide, which supposedly helped Ernest Hemingway develop his distinctive style. Tate has his own blog here, and you can follow him on Twitter here.

Published March 19, 2012

Slides of My Keynote Lecture at Last Weekend’s “Economics and Management of Risk in Agriculture and Natural Resources” Conference

I was trained as an agricultural and applied economist, so I have spent a lot of time doing research on risk as it relates to agriculture and development (see here and here for published articles).

Because of this, I have been involved with the annual Economics and Management of Risk in Agriculture and Natural Resources conference for the past few years.

I first presented at that conference in 2009, and since I had then volunteered to organize the conference, I was in charge of the conference program in 2010 and of logistics in 2011.

This year, I was asked to give the keynote lecture, in which I chose to discuss what the “credibility revolution” that took place in economics over the past ten years or so — which has lead to economists to adopting stricter standards of evidence and of statistical identification — means for agricultural and applied economics as a field.

In case you have an interest in this topic, I am making the slides of my keynote lecture are available. I think the content of those slides is especially relevant for current graduate students of agricultural and applied economics.

The Economics and Management of Risk in Agriculture and Natural Resources conference is usually held somewhere on the Gulf Coast. This year, it was held in Pensacola, FL. I took the picture on top of this post while walking along the beach early Saturday morning.

Published March 13, 2012

Do Food Prices Track Oil Prices?

Not necessarily, argues Kay McDonald on the basis of a recent OECD report:

While it is partly true in the industrial agricultural system that “food equals oil,” there are many other factors which affect food prices, including the definition of “food” used in making the comparison. Below, I’ve listed some of them.

  • The dollar’s value compared to currencies of other food exporting and importing nations.
  • Supply and demand.
  • Amount of food used for biofuel production.
  • Available infrastructure in transport and storage of food.
  • The price of natural gas.
  • Economic health of each nation.
  • The amount of global meat consumption.
  • Weather.
  • Population growth.
  • The percent of food wasted.
  • Transport prices (not always the same as oil prices, as, for example, currently we have excess bulk shipping capacity which has lowered shipping rates).
  • Government Ag policies and price support programs.
  • Trade agreements.
  • Geopolitics.

In her post, Kay also discusses how the OECD report finds no support for the claim that food price volatility has increased  significantly over the last few years when compared to the last 50 years.

More generally, if you have any interest in food policy, Kay’s blog, Big Picture Agriculture, is a must-follow.