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Volatility of international food prices has fallen,
but could climb again
Figure 8. Volatility of international food
prices (June 1997-July 2012)
Figure 8 8 shows how, during the crisis period, international
food price volatility increased by up to 7%, three
times the price volatility recorded in the years preceding
the crisis of 2008. It is worthy of note that this price
volatility fell to 3% during the period between June 2010
and June 2012.
It must be emphasized, however, that the factors that
explained the extraordinary increase in price volatility
in 2008 have not disappeared. Rather, these are now
combined with the effects of the drought in the U.S. and
other parts of the world. However, increases in volatility
are expected in the short term, although perhaps not to
2008 levels. For example, as a result of climatic conditions,
the indicator of volatility jumped from 1.83% to
2.77% in the last two months.
Outlook
In the long term, the price of agricultural commodities
will continue to trend upwards, and this will be
accompanied by fluctuations resulting from cycles,
seasonality and volatility. For example, as this chapter
is being written, prices are moving upwards as a result
of the drought in the U.S. Nevertheless, in the short
term, when producers respond to the current high prices,
harvests will increase and prices will regain their
long-term trend.
The demand for agricultural products will
continue to grow, although food supply and
agricultural raw materials are not growing at
the same rate.
Within a context of reduced availability of natural resources
per inhabitant, the demand for agricultural products
for human and animal consumption, as well as
for the production of biofuels is growing. This explains
why, on average, prices are projected to be higher in the
following decade than in the previous one. Let us con-
8 In this section, volatility is calculated as the standard 12-month
mobile deviation of monthly logarithmic changes in the FAO international
price index. However, it reflects the monthly price variations,
upwards or downwards, around the median. It must be noted that
volatility may be up to three times lower if the components of longterm
trend, medium-term cycles, and seasonality were isolated (see
ECLAC/FAO/IICA, 2011)
sider, for example, that China is currently maintaining
very low levels of consumption of food per capita, which
are expected to grow significantly in the future with the
increase in income.
Additionally, the increase in the cost of energy affects
the entire production chain of inputs for agriculture,
transportation, processing and marketing of agricultural
products, affecting the marginal costs of production
along the food chain. The uncertainty with respect to the
future of energy prices also affects investment decisions
(Kilian 2008)
Moreover, it is expected that the dollar will depreciate
rapidly (basically, as a result of a U.S. policy to finance
its trade deficit), which will contribute somewhat to
the increase in the international prices of agricultural
commodities. A cheaper dollar stimulates world demand
for agricultural products based on the fact that most of
the trading is carried out in that currency (eclac/fao/
iica, 2011).
In the face of growing demand for food and agricultural
raw materials, structural factors remain in force
which limit growth in the production of agricultural
products at the required pace. The agricultural surface
area will be more and more limited (especially when
measured in terms of availability per inhabitant) and
production areas will be expanded in zones with low
agricultural productivity. As mentioned earlier, there
are enormous gaps in agricultural productivity between
countries, which means that there is great potential for
increasing production. However, agricultural yields are
growing at slower rates than in the past. Water is another
scarce resource; when it needs to be pumped for use in
36 The Outlook for Agriculture and Rural Development in the Americas –eclac fao iica–
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