Bursting the Bubble: A Long Run Perspective on Crop Commodity Prices

Uris Lantz Baldos and Thomas Hertel

GTAP Working Papers from Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University

Abstract: Contrary to the opinions expressed by many commentators, the recent price spike in agricultural commodities is a transitory phenomenon. Using projections from SIMPLE – a global model of the farm and food system – we argue that, in the long run, food prices will most likely resume their historical downward trend. We begin with an evaluation of the historical period 1961 to 2006 wherein the growth in agricultural productivity outpaced that of global crop demand, the latter being fueled by rising population and incomes. As a consequence, we observed a historical decline in global crop prices, which the SIMPLE model faithfully reproduces. Moving forward to 2051, we establish a set of projections in global crop prices given expected developments in population, incomes, agricultural productivity and biofuel use. We project that global crop prices will continue their long run decline in the coming decades, albeit at a slower pace. However, we recognize that, under some circumstances, global crop prices could still increase by mid-century. To formally assess the likelihood of future price changes, we conduct Monte Carlo simulations given distributions in the growth rates of both drivers and economic responses. Results show that 72% of the realizations produce price declines from 2006 to 2051.

Date: 2014
New Economics Papers: this item is included in nep-agr
Note: GTAP Working Paper No. 80
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:gta:workpp:4574

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