Why Commodity Market Volatility Matters for Developed Countries?


Remarks by Angel Gurría


Rome, 15 June 2010

Ladies and Gentlemen,

It is a pleasure to participate to this special event on commodity market volatility organized by the FAO. Let me thanks my good friend Jacques Diouf for the initiative and for the honour and privilege that I have been conferred to open the discussions on such a topical issue.

Well, some of us just came from the release of the 2010 OECD-FAO Agricultural Outlook. You will have noticed that this year’s projections are cautiously bullish. As always, however, such reports are based on underlying assumptions of ”normal” trends and conditions – normal macroeconomic environment, normal weather, normal production and consumption patterns, normal trade flows.

But as we all know agriculture is sometimes hit by shocks that can destabilize markets. We have just experienced an episode where prices rose to very high levels and then fell again, with important impacts on poor consumers and farmers. As the global economic recession followed, many observers were wondering if we would ever return to “normal”.

Let me point out, however, and with some pride, that the OECD-FAO agricultural outlook has been pretty accurate in explaining the causes and consequences of past market shocks. We said commodity prices would come down quickly from the peaks and they did. We said real prices would remain above previous levels and they have. We said the sector would be resilient to the economic recession and it was.

Of course, the risk of new shocks is ever present - we can not be sure when, where or how severe future shocks will be. In this year’s Outlook we took an in-depth look at price volatility – focusing on the main food crops wheat, maize and rice. We did not find any clear evidence of increased price volatility over the last four decades, and it is impossible to predict what will happen in the future. But if volatility is going to increase in future we need to be thinking, now, about the right policy responses.

We also know that the transmission of global prices to domestic markets varies considerably across countries depending on their integration in world markets, the efficiency of the infrastructure in place, and the degree of market orientation in domestic agriculture policy. It is this transmission of world prices to domestic markets that we need to better understand. 

Today many governments are asking whether they need to do more to prevent future shocks or to do more to help producers and consumers manage the various risks that exist or cope with the effects.  But, you know, the track record of governments tying to anticipate and intercept such shocks (e.g. public stockholding, domestic price controls) is not very good -- governments are no better than economists in predicting the future -- and such attempts have often been very expensive and wasteful. Policy responses to recent price spikes (e.g. export restrictions) not only worsened global price volatility but reduced global confidence in trade as a means to ensure food security.

Let’s be frank, at the international level, policy options to stabilize prices are limited. What countries can do is to take action to ensure more confidence in global markets and assure smoother flows of food, especially in emergency situations. Trade and trade rules are crucial here to ensure that food can flow reliably from surplus to deficit areas across the world, including in times of market stress.

Many governments are doing a much better job at providing the tools to help producers manage risk at the farm level, as well as assisting poor consumers with food expenditures. At the OECD Agriculture Ministerial this past February, Ministers expressed concern about recent price volatility, recognizing that a more integrated approach is needed and that governments should ensure appropriate policies are in place to facilitate the management of risk. Ministers asked us to help them develop policies that work, and we are doing exactly. But we could use your help as well and so we are looking forward to the results of your discussions.

Today we have a number of experts, including my good friend and past Director of the OECD Trade and Agriculture Directorate – Stefan Tangermann, to launch a discussion on some of the policy options that may help the industry and governments to better address market volatility in agriculture. A similar event is planned for Washington in a couple of days and we hope this too will provide some good ideas.

I wish you an interesting and productive discussion – and I look forward to hearing about the outcome.

Thank you.


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