AS DATA INFORMATION AND TRANSPARENCY CAN LIMIT THE IMPACT OF PRICE VOLATILITY Roma 19/12/2012 Felice Adinolfi

A GRAPHICAL VIEW OF THE PROBLEMS…

… OR MORE ANALYTICALLY… Commodities Mean 2000 2004 Mean 2005 2010 S.D. 2000 2004 S.D. 2005 2010 CV 2000 2004 CV 2005 2010 Maize (US No. 2, Yellow) 98.89 164.36 12.73 52.51 0.13 0.32 Wheat (No. 2 Hard Red Winter) 142.20 245.29 20.88 75.79 0.15 0.31 Wheat (US No. 2, Soft Red Winter) 123.73 207.13 21.25 68.80 0.17 0.33 Gulf, Sorghum (US No. 2, Yellow) 102.83 164.72 12.79 48.70 0.12 0.30 Thailand: Bangkok, Rice (Thai 100% B) 205.41 459.80 25.60 169.03 0.37

PRICE VOLATILITY: CAUSES… High and volatile agricultural commodity prices challenge the ability of consumers, producers and governments to cope with the consequences Factors have contributed to increases price and volatility: Increase in yields and production faster than population and income growth Investment and supply growth have slowed while demand has continued to grow rapidly Reduction in stocks to uncomfortably low levels Biofuel production linking agricultural prices and markets more closely to energy markets and volatile oil prices Speculation on food commodity futures markets

… AND CONSEQUENCES Highly volatile food prices worsen food insecurity and malnutrition and, in general, hurt consumers. Benefit from output price increases are offest by faster input price increases, leading producers worse off. Price volatility increase uncertainty and risk, which deters investment

WHAT CAN BE DONE… Policy interventions for storage might help to reduce price volatility... but they are costly and hardly manageable. Subsidies and mandates on biofuels might be very distortive. Futures markets helps in price discovery and risk management but require large amount of information.

WHAT CAN BE DONE… … indeed there is a clear consensus on the relevance of transparency and accurate information on market mechanisms. .. but how? Information on the current situation and outlook for global agriculture shapes expectations about future prices letting the market work more efficiently. Information helps reducing magnitude of panic-driven price surges in developing countries.

WHAT CAN BE DONE… … indeed there is a clear consensus on the relevance of transparency and accurate information on market mechanisms. .. but how? Information on the current situation and outlook for global agriculture shapes expectations about future prices letting the market work more efficiently. Information helps reducing magnitude of panic-driven price surges in developing countries.

IS THE THEORY SUPPORTING? Furman and Stiglitz (1998) stated that more information leading to more short term trade and thus more volatility but on longer term information reduces volatility (Mothadi and Ruediger, 2012) due to small adaptation on price expectatios

SOME EMPIRICAL SUGGESTIONS… A frequent and systematic monitoring (e.g. satellite data or geographic information systems) of the state of crops would improve short-run production forecasts and hep providing accurate yield and production expectations. Information on food stocks is an essential component of a global food market information system. International cooperation to improve the accuracy of estimates of world food stock would reduce panic-induced prices volatility.

SOME EMPIRICAL SUGGESTIONS… The Agricultural Market Information System (AMIS) aim to improve data reliability, timeliness and frequency, as well as enhance policy coordination in times of crisis. Its role is to collect, analyse and disseminate information on a regular basis regarding the food situation and outlook as well as to develop food policies..

ON AMIS… AMIS is an initiative of the G20 designed to improve agricultural market information, analyses and forecasts at both national and international levels; report on abnormal international market conditions; collect and analyse policy information, promote dialogue and responses, and international policy coordination; build data collection capacity in participating countries.

READINGS FAO, IFAD, IMF,OECD, UNCTAD, WFP, the World Bank, the WTO, IFPRI and the UN HLTF (2011) Price Volatility in Food and Agricultural Markets: Policy Responses. Furman and Stiglitz, (1998) Economic Crises: Evidence and Insights from East Asia. Brookings Papers on Economic Activity. Hajkowicz et al. (2012) Food price volatility and hunger alleviation – can Cannes work? Agriculture & Food Security. 1:8 Mohtadi and Ruediger (2012) Does greater trasparency reduce financial volatility?