Farm and Food Prices
What Drives Food Prices?
Supply conditions
Demand conditions
Marketing services and costs
Government
Macroeconomic environment
Foreign markets
Food Price Trends and
Relationships
Farm prices tend to fluctuate more than
food prices
Farm prices tend to be flexible both upward
and downward where food prices tend to be
flexible only upward
Growth Rates in Food
Prices:1980-1992
Holland--35%
U.S.--55%
Mexico--18,646%
High food prices may force Philippines ration cut: UN agency
Mon Apr 14, 10:35 PM ET
A UN agency may be forced to cut rations feeding more than a million people in the
troubled southern Philippines because of soaring world food prices, it warned Tuesday.
The World Food Programme has just 4,000 tonnes of rice left in its warehouse in
conflict-hit Mindanao, a supply which will only last about two months, said Alghassim
Wurie, the agency's deputy country director.
If the WFP fails to get more funds it may be forced to "cut rations and the most
affected would be women and children," Wurie said.
"We are appealing for the donor community, the governments and the private sector
companies to help us raise enough money to enable us to deliver support," Wurie told
AFP.
He said the World Food Program (WFP) will need 500 million dollars in extra
worldwide funds this year due to rising food prices, with 19 million dollars needed in
immediate "operational funding" for Mindanao.
The WFP fed some 1.6 million people in Mindanao last year, most of them women and
children in five central Mindanao provinces wracked by a decades-old Muslim
separatist insurgency.
WFP runs a novel food-for-education program in Mindanao, where children are enticed
to return to schools in exchange for rice rations to their families, and also helps feed
families displaced by the insurgency.
Food and Non-Food Prices
Both food and non-food prices have tended to
move together in the long-run
75% of retail food prices are composed of
marketing costs such as energy, labor, packaging,
etc.
Increases in food prices stimulates farm
production, which increases demand for non-food
products
affected by same economic forces
Pricing Efficiency
Time
Amount of Processing
Number of Products
Observations on Pricing
Efficiency
Farm and retail food prices do move together, but
the degree of association is affected by the amount
of processing
Effects of changes in food prices on farm prices is
distributed through time
Retail and wholesale prices respond to both rising
and declining farm prices
Food in stores reflect more closely short-term
changes in price than restaurants
Fluctuating Prices
Wide and frequent fluctuations in
commodity prices is the rule, not the
exception
What impact does changing quantities have
on the price?
Price Flexibility
The percentage change in price resulting
from a percentage change in the quantity
supplied or demanded.
Inverse of the elasticity of supply or
demand.
Examples price flexibilities of
supply
Potatoes--a 1% increase in the quantity
supplied leads to a 6.7% decrease in the
price (e.g., F=(-6.7)).
Cattle--a 1% increase in the quantity
supplied leads to a 2.4% decrease in the
price.
Some Sources of Price
Variability
The Business Cycle
The Business Cycle
The business cycle refers to cyclical
changes in the aggregate demand or
aggregate supply of goods in the economy.
Farm prices respond differently to the
business cycle than do other non-farm
prices.
Farm and Industry Response
to The Business Cycle
P P
S’
S S
D D
D’ D’
Industry Q Agriculture Q
Some Sources of Price
Variability
The Business Cycle
Agricultural Price Cycles
Agricultural Price Cycles
Agricultural prices regularly cycle due to
periodic expansions and contractions of
farm output
Cob-Web Theorem
Cob-Web Theorem
Price
Output Expansion
Falling Prices
Rising Prices
Output Contraction
Quantity
Some Sources of Price
Variability
The Business Cycle
Agricultural Price Cycles
Seasonality
Seasonal Price Variation
More or less regular patterns of price
changes that occur within a crop or
marketing year
e.g., corn prices are lowest at harvest and then
increase through the year
Farm Income and Prices
Farm income affected by three factors:
the volume of farm products sold
the price of farm products
farm costs of production and marketing costs
Net Farm Income
Gross Farm Income
Production Expenses
Net Farm Income
Time