The need to regulate agricultural markets
Analysis and proposals in view of the recent food price crisis
12 May 2009
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The context in which the question of agricultural market regulation needs to be considered has changed drastically as a result of the events of the past two years.
From the early 1980s onwards and for a period of over twenty years the problems of agricultural markets resided mainly in chronic surpluses and rock-bottom prices – although paradoxically these coincided with continuing shortages for very large population groups.
Over the same period globalisation gathered pace, bringing with it a general trend towards deregulation and market liberalisation which was supported by the international institutions (OECD, WTO, WB, etc.) and accepted by national governments.
In this context of chronic surpluses the risks were shouldered mainly by the producers who were underpaid for their produce. These risks were further aggravated by the process of liberalisation and deregulation. Consequently neo-liberal theoretical approaches based on decoupled aids and income insurance systems have flourished.
Recent events have changed the equation and made the situation far more complex. They have multiplied the risks and the number of parties affected. They challenge the validity of overly simple theoretical approaches to agricultural policy.
The key event to be considered here is the explosion of certain agricultural commodity prices in 2007-2008 and its multiple knock-on effect on consumer food prices. Energy prices and the prices of certain raw materials also rose considerably at the same time. A relative scarcity of natural resources began to affect markets. To this must be added – although the event is more recent and its outcome still uncertain – the current financial turbulence, the immediate result of which has been to put market regulation back on the agenda.
These events and their dissimilarity with previous circumstances force the public authorities to prepare for a far more complex situation. Agricultural product prices can create problems whichever way they move. The long term trend - previously downwards - now appears to have been reversed and volatility has increased. The types of risks that have to be considered are far more disparate – they might take the form of excessively high consumer prices or excessively low farm prices. High volatility of import prices is negative for all concerned – it jeopardises food security in the urban areas of some developing countries. Not only farmers are affected by these risks, so are consumers and even stability-seeking agri-food industries.
The changing situation poses a challenge to simplistic theoretical approaches relying on agricultural policy instruments that only work in a single set of circumstances and are founded on the assumption of perfectly functioning markets. They invite more serious scrutiny of the possibility of market imperfections and the whole issue of market regulation. Regulation can help adjust prices upwards or downwards, avoiding extremes. It can attenuate price volatility and improve food security by encouraging local supply strategies for urban areas in developing countries. Its requirements in terms of public funding are moderate.
The objective of the seminar is to re-examine the question of of agricultural market regulation in this new context.
Specific objectives of the conference
1. Improve the analysis of the new context of increased price volatility, identify their causes and their risks (for small holders, but also for consumers, access to food, access to natural resources…) both within the national and international context.
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