No. 12
March
2013
Network Support Department
Communications, Planning and Economic Monitoring Sub-Directorate
Economic and Price Monitoring Bureau
Volatility in global agricultural commodity markets and
changes in consumer food prices in France
Nicolas Roux1
Global agricultural commodity prices have been highly volatile since the mid-2000s
with significant impact on consumer food prices.
Part of this price instability is due to structural factors related to the specific features
and constraints of agricultural markets. That said, recent shifts also coincide with the
very widespread "financialisation" of agricultural markets (futures markets) since the
turn of the century. This phenomenon is often cited as having either caused huge price
hikes or having been a contributory factor.
Studies have shown that agricultural commodity price volatility has increased
dramatically since the mid-2000s. Since the start of the financial crisis in 2007-2008,
domestic and international regulatory measures have been introduced or stepped up in
an attempt to rein in and anticipate this volatility.
Its scope has underscored the correlation between changes in global agricultural
commodity prices and those affecting consumer food prices.
1
Research officer with the Economic and Price Monitoring Bureau, [email protected]
1
1) Agricultural markets are specific markets with structural instability. They are
subject to growing "financialisation" and new types of regulation
a) These are varied, imperfect and narrow markets, making them stand out from other
markets for goods and services:
Agricultural markets vary greatly; the features of grain markets are totally different
from those of say fruit and vegetable or beef markets. Goods on these markets all have
their own characteristics such as whether or not they can be warehoused or are
interchangeable.
These markets are also "imperfect". First, demand is relatively price inelastic and
"King's law" states that price elasticity of demand is low, less than 1 in absolute value.
Increases or reductions in the price of an agricultural product will have limited impact on
demand as basic food products are necessities.
Second, agricultural product supply is partly dictated by the seasonal nature of
production creating a time lag between demand and supply. This means that farmers
cannot alter production levels when they receive the first signs from the market (prices in
particular) but often have to wait until the next production year. This short-term
inelasticity of supply may cause instability specific to agricultural markets.
Supply may also depend on external factors such as the weather (experts have coined the
phrase "weather market”) and diseases affecting crops or livestock. The weather can also
impact demand with, for example, fruit consumption rising during warm weather. The
foregoing contributes to the complex nature of agricultural markets.
Narrowness is also a main feature of agricultural markets. The majority of global
grain production (wheat, rice and corn) is consumed in the producing countries with less
than 20% being traded on international markets. For oil, the percentage is around 66%2.
If, for example, global grain production falls by 5%, producing countries tend to turn to
their domestic markets and take the 5% needed from volumes earmarked for export. This
has potentially significant ramifications for prices set on international markets and
amplifies the impact on commodity prices of a change in the output levels of a major
exporting nation.
2
See Centre d’analyse stratégique, Policy Brief 207, January 2011, page 6 (in French),
http://www.strategie.gouv.fr/en/content/poliy-brief-207-volatility-commodity-prices-part-2-january-2011.
2
At the start of the 21st century, agricultural markets are affected by major developments
such as the economic growth of emerging countries (China, India and Brazil). This is
revolutionising demand through increased consumption of agricultural produce and the
changing eating habits of these countries' citizens. Meat consumption has risen
dramatically with the impact being reflected on demand and prices not only of beef but of
the grains and oilseeds used for animal feed. As emerging countries are importing more
and exporting less agricultural commodities to meet this new domestic demand, there is
additional pressure on global agricultural markets. Since 2004, China has been a net
importer of agricultural products.
The supply/demand ratio on certain agricultural markets also appears to be affected
by the use of agricultural products to manufacture biofuels3. Indeed, grains and
oilseeds are used for human consumption, animal feed and to manufacture biofuels such
as corn-based ethanol in the US and rapeseed biodiesel in Europe.
This is not groundbreaking as, in the early 20th century, some vehicles ran on ethanol or
peanut oil. But, as petrol was in good supply and was cheap, manufacturers discontinued
this practice until the 1970s. When the first oil crisis broke in 1973, biofuels returned to
favour. This renewed interest was both financial (in light of rising oil prices) and strategic
(the developed countries wanted access to a secure energy supply).
Since the late 1990s and record oil prices, the sector has expanded rapidly. Between 1997
and 2001 and again between 2007 and 2011, corn was more widely used to manufacture
ethanol and for animal feed, and consumption jumped by 37%. To meet its long-term
renewable energy targets, the US needs to manufacture bioethanol. Concomitant use of
grains and oilseeds is not necessarily incompatible as grain residue from bioethanol
production is being increasingly used to feed livestock.
Rising global fuel demand (biofuel production either replaces or supplements oil
products) from businesses and households contributes to higher agricultural product
prices. This is because the biofuels sector currently uses up part of agricultural production
and monopolises some arable farmland. First generation biofuels (ethanol and biodiesel)
are currently produced using grains (wheat and corn), sugar crops and oilseeds. Medium
term, the second generation should be manufactured using the non-edible parts of plants,
leaving the edible parts for human consumption and animal feed. In the very long-term,
microalgae will be used to produce third generation biofuels.
3
See DGCCRF-éco No. 9, “European and global biofuel production and consumption markets and prices”, December
2012, http://www.economie.gouv.fr/files/files/directions_services/dgccrf/documentation/dgccrf_eco/dgccrf_eco9.pdf.
3
Other structural considerations such as demographic growth, climate change and
development pressure on farmland cause shifts in agricultural commodity markets.
Lastly, the effect of exchange rate fluctuations should be factored in. Between January
2002 and June 2008, the US dollar contracted by 35% against the euro. The fact that
certain currencies have gained against the dollar has boosted demand on global
commodity markets where products are priced in dollars as some countries have seen
their purchasing power increase based on the exchange rate variations.
b) The “financialisation” of agricultural commodity markets has taken off over the last
decade
There have been markets for trading agricultural produce since the Middle Ages and these
have evolved into different forms.
As a first example, spot markets balance supply and demand for tangible products by
increasing volumes traded and fostering transactions. A modern manifestation of these
markets is the marché à la criée (open outcry auction market) in fishing ports where the
“crieur” sets a starting price per kilogram for the products on offer. There is also another
form of auction called a marché au cadran (for pork and cauliflower in Brittany), in
which the bids go down and the first bidder bags the prize. With spot contracts, the idea is
for the producer-seller to actually deliver the goods to the buyer in consideration for
immediate payment in cash on a basis decided on by the contracting parties. For
agricultural produce an obvious criteria is quality. The spot price echoes market
conditions at a given time and place with no reference to the future.
Deferred delivery contracts in which a future delivery date is set emerged in the wake
of spot contracts. These contracts allow for time management as they can be endorsed by
third parties and thus exchanged4. Endorsements allow firms to commit to deferred
deliveries so that they can purchase the goods at the most opportune moment. Dating
back to the Middle Ages, these contracts paved the way for the involvement of a new
stakeholder who would have an increasingly important role – the broker. Unlike other
players (producers, industry, consumers, etc.) brokers play no part in the production,
consumption or warehousing of tangible products. These contracts represented the first
step towards standardising contracts for transactions scheduled for the near or long-term
future with negotiated prices at a given place and time.
Derivative contracts (forward contracts and options) are different as they do not
concern tangible goods but financial assets with goods being underlying assets. They
represent commitments to deliver or take possession of a tangible asset with specific
features (fungible product able to be traded on a market, able to be warehoused and for
which standard quality can be ascertained). With these contracts the price is established in
advance and an element of uncertainty is removed. Farmers know how much they will
sell their future harvests for and buyers, such as food processing businesses, secure their
procurement of commodities for a price set in advance thus avoiding unforeseen price
fluctuations.
4
See the Progress Report (in French) submitted to the Minister for Agriculture, “Prévenir et gérer l’instabilité des
marchés agricoles », Jean-Pierre Jouyet, Christian de Boissieu and Serge Guillon, 22 September 2010, page 4,
http://agriculture.gouv.fr/IMG/pdf/Nouveau_rapport_etape_Jouyet_Boissieu_Guillon.pdf.
4
Derivatives are used either to hedge risks (for the producer or actual buyer) or to
speculate. Brokers are involved in the latter operations, maintaining market liquidity,
with any capital gains representing their commission.
Derivatives may be either firm (forward contracts) or optional. The latter are either
purchase (call) or sell (put) options for a volume of an underlying asset for a price set in
advance and on an agreed date. They are traded on options markets for prices called
“premiums”. Options provide hedging against the risk of the sale or purchase price of the
underlying asset fluctuating. The price of the option is commensurate with the risk.
Example of a put option
A farmer has an underlying asset, a ton of wheat for example, and a trader has nothing.
At the date t = 0, there may be two scenarios:
- Either the farmer buys the option to sell the underlying asset at date T for set price P
- Or the trader buys it
On date T, the farmer and the trader will either exercise their put option or not according
to the value of spot price PT:
PT > P
PT < P
Farmer
NO
YES
Trader
NO
YES
Where PT > P:
- The farmer has nothing to gain by exercising the put option for the underlying asset. As
the spot price is higher, he will choose to sell the underlying asset on the spot market.
- The trader will not exercise his put option either. If he were to buy the underlying asset
for the spot price on date T to exercise his option, his loss would be PT – P.
Where PT < P:
- The farmer will benefit from exercising the put option as it will enable him to protect
himself against the price of the underlying asset falling.
- The trader will also exercise his option and will make a profit of P - PT by buying the
underlying asset for spot price PT.
5
Forward contracts are traded on two main derivatives markets:
- Exchanges. These markets have physical locations and have a central authority that
draws up rules governing the security deposit to be paid prior to trading. A clearing house
acts as central counterparty for the transactions: settlement and delivery of contracts are
simultaneous. The system is transparent and mitigates the counterparty risk (margin call
mechanism: mandatory security deposits for all traders to cover open positions). Traded
products are standardised in terms of volume, due date and delivery date and the resulting
forward prices are public knowledge. The Chicago Mercantile Exchange (CME) is the
major grain exchange in the US.
- OTC markets. Unlike exchanges, these markets do not have a central authority or
clearing house. They are grounded in bilateral transactions, offer traders greater
confidentiality and are therefore less transparent. The number of transactions carried out
cannot be easily assessed. Transaction costs are lower as there is no security deposit,
meaning that the counterparty risk is not covered. Unlike the contracts drawn up on
exchanges, on these markets, forward contracts are negotiated over-the-counter and are
not standardised.
Source: Communication from the European Commission, “Tackling the challenges in commodity markets and on raw
materials”, 2 February 2011, page 8.
[number of contracts in millions
CBOT Corn, wheat, rice, soybean oil
CME Live and feeder cattle, milk
CME S&P commodity index
CMX Gold, silver, copper
ICE Cocoa, coffee, cotton, orange juice, sugar KBC and MGE Wheat
NYME Crude oil, natural gas
NYME Palladium, platinum]
In the 2000s, transactions on commodity derivative markets, particularly OTC markets,
rose significantly. According to European Commission figures, institutional investments
in commodity markets (energy, metals, minerals and agriculture) climbed from €13
billion in 2003 to between €170 and €205 billion in 20085.
5
Communication from the European Commission, “Tackling the challenges in commodity markets and on raw
materials” 2 February 2011, http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0025:FIN:EN:PDF.
6
At the turn of the century, with the downturn in global securities and bond markets, many
investors turned to the futures markets for agricultural products and new stakeholders,
such as hedge funds and index funds, emerged. With investors looking to diversify risk
and maximise profits, their portfolios now contain both shares and commodity
investments and agricultural products have become full-blown financial products.
These futures markets are very widespread in the US. This was less the case in Europe as,
historically, the Common Agricultural Policy (CAP) ensured price stability. This meant
that hedging instruments were not needed. With the gradual dismantling of the CAP in
the 1990s and 2000s, these markets expanded significantly.
7
c) From government regulation to cross-border regulation
c)1) Government regulation in the US
Established in 1975, the Commodities Futures Trading Commission (CFTC) is tasked
with regulating all commodity markets: physical markets, exchanges and OTC markets.
For the purposes of this document, "regulation" means all of a market's operating rules.
The CFTC is an independent federal agency that protects market participants against
manipulation and abusive trading practices. Where appropriate, it takes the required
remedial action. It also deals with complaints for violations of regulations and legislation
filed against traders.
Every week, in line with its mandate and to ensure transparency, the CFTC posts
aggregate large trader net position changes in centralised databases. Data is provided by
underlying commodity category (agricultural products, oil, natural gas, electricity,
metals), operator profile (traders or otherwise) and by market (CBOT, etc.). It can be
viewed on the CFTC website (http://www.cftc.gov/index.htm). The CFTC sets position
limits but, in some cases, non-traders may be exempted.
The Dodd-Frank Act of July 2010 (Title VII - Wall Street Transparency and
Accountability) bolsters the CFTC’s authority by introducing new rules for position limits
on forward contracts negotiated on exchanges during the same reference period. The aim
of the rules is to protect market liquidity whilst diminishing and preventing excessive
speculation and eliminating market manipulation.
c)2) The shift towards cross-border regulation
The last 60 years have taught us that it would be difficult to introduce global trade (or
market) regulation. On the global free trade scene, agricultural issues were traditionally
excluded from GATT (General Agreement on Tariffs and Trade) talks. In the post-war
years, with an eye to fostering production, protecting farmers’ income and ensuring price
stability, many States (for example, European countries through the Common
Agricultural Policy) rolled out interventionist and protectionist policies for agriculture.
Other policies to support prices, offer export subsidies and impose import restrictions
reflected the strategic goal of food self-sufficiency and security of supply.
These policies came under increasing fire in the 1980s with the loudest dissenting voices
coming from the emerging countries. The purpose of the 1994 WTO Agreement on
Agriculture was the gradual deregulation of trade in agricultural products by more closely
aligning it with the rules governing market competition. After this attempt at trade
liberalisation, the issue of access for the agricultural products of developing countries to
the markets of developed nations was raised. Under the aegis of the World Trade
Organization (WTO) as the GATT’s successor, this was addressed by the Doha Round of
talks which were finally abandoned. This was due to the failure to reconcile the trade
interests of developed (US and EU) and emerging (Brazil, Argentina, India) countries.
8
Although the GATT and WTO Agreement on Agriculture did enable significant
expansion of global agricultural trade they failed to rein in product price instability and
volatility which have been defining features since the 1970s.
With this in mind, in the wake of the 2007-2008 global food crisis and during France’s
Presidency of the G20 (November 2010 to November 2011), a working group on
commodity price volatility was set up. Focusing on derivatives markets, the purpose of
this working group is to heighten market transparency (particularly of OTC markets),
tackle abusive practices and step up coordination between regulators.
The ultimate goal is to achieve regulation that improves global food security through a
number of objectives committed to at the meeting of G20 Agriculture Ministers on 22 and
23 June 2011:
- Improve agricultural production and productivity both in the short and long term in
order to respond to a growing demand for agricultural commodities
- Increase market information and transparency in order to better anchor expectations
from governments and economic operators
- Strengthen international policy coordination in order to enhance confidence in
international markets and to prevent and respond to food market crises more efficiently
For the second and third objectives, the G20 launched the Agricultural Market
Information System (AMIS6) to encourage major players on the agri-food markets to
share data, particularly data on stocks. The AMIS produces statistics and draws up
analyses of four main grains: maize, rice, soybeans and wheat. Participants are the G20
Members and seven Invited Countries: Egypt, Kazakhstan, Nigeria, the Philippines,
Thailand, Ukraine and Vietnam. These are the main producers, consumers and
exporters/importers of the relevant products.
The AMIS has two structures:
- The Global Food Market Information Group which provides data on supply, demand
and the prices of these products
- The Rapid Response Forum which aims to foster dialogue between governmental
stakeholders to foresee or settle crises on the agricultural or agri-food markets
6
http://www.amis-outlook.org/home/en/.
9
2) Recent changes in agricultural product price volatility and agricultural market
regulation
a) Agricultural product price volatility has intensified since the mid-2000s
Price volatility is a series of sudden and significant price fluctuations. Volatility
indicators7 are calculated by dividing the standard deviation by the average.
Volatility in the agricultural sector is structural. As previously mentioned with the
example of "King's law", prices are highly sensitive to changes in production. This
structural volatility is coupled with more cyclical volatility. The 1970s witnessed major
price instability, particularly for grains, and price fluctuations were accentuated with the
breakdown of the fixed exchange rate system early in the decade.
Source: Centre d’analyse stratégique, Policy Brief 207, January 2011, page 2.
[Grain price volatility by year (nominal figures) from 1957 to 2009
Wheat Corn Rice]
The mid-1970s were characterised by significant grain price volatility (spike with a ratio
of more than 0.5), and the same trend emerged in the mid and late 2000s (ratio close to
0.4).
Strong volatility has an impact on consumers (food riots in developing countries, less
purchasing power in developed nations) and production stakeholders (fluctuations in
producers’ income, no investment or under-investment in agriculture, lower margins for
processing and retail businesses).
7
See Centre d’analyse stratégique, Policy Brief 207, January 2011, page 2 (in French).
10
The graph below sets out recent price volatility (2007-2012) of wheat, corn and soybeans
(in Chicago):
Volatility of wheat, corn and soybean prices in Chicago, 2007-2012
0.30
0.25
0.20
0.15
0.10
0.05
2007
2008
Wheat price volatility
2009
2010
Soybean price volatility
2011
2012
Corn price volatility
Source: Insee, March 2013, DGCCRF calculations, March 2013
Volatility indicators (standard deviation/average ratio) of wheat, corn and soybean
prices 2007-2012:
2007
2008
2009
2010
2011
2012
Average
2007-2012
Wheat
0.28
0.23
0.08
0.19
0.11
0.15
0.17
Corn
0.08
0.20
0.09
0.21
0.07
0.10
0.13
Soybeans
0.17
0.19
0.09
0.12
0.07
0.11
0.13
During the global food crises in 2007-2008, and again in 2010-2011, there were volatility
spikes for certain agricultural commodities. The spikes represent major price hikes,
especially for wheat. Between January 2006 and April 2008, prices for corn, soybeans
and wheat soared 178%, 124% and 164% respectively, before falling off to figures
resembling their long-term value in late 2008. The price of corn did not follow this trend
in 2007. Compared to prices for the other two commodities, it had quite low volatility
(ratio less than 0.1).
Unlike with previous food crises, recent price volatility has affected a broad range of
agricultural products including grains, oilseeds, diary produce and, to a lesser extent,
tropical commodities. In Europe, price spikes have had an even stronger impact with the
gradual dismantling of price support programmes leaving farmers more vulnerable to
price variations.
11
Volatility Indicators (standard deviation/average) for six commodities, 1996-2012
0.18
0.16
0.14
0.12
0.10
96-01
02-06
07-12
0.08
0.06
0.04
0.02
0.00
Brent crude oil
(London) - $ price
per barrel
Gold (London) - $ price Sugar No 11 contract Wheat (Chicago) - Price Soybeans
per ounce
(Chicago) – Price in
(New York) – Price in cents per 60-pound
in cents per pound
bushel
cents per 60-pound
bushel
Corn (Chicago) - Price
in cents per 60-pound
bushel
Source: Insee, March 2013, DGCCRF calculations, March 2013
Volatility Indicators (standard deviation/average ratio), 1996-2012:
Oil
Gold
Sugar
Wheat
Soybeans
Corn
Average
1996-2012
0.13
0.06
0.14
0.12
0.11
0.11
Average
1996-2001
0.14
0.04
0.13
0.07
0.07
0.09
Average
2002-2006
0.11
0.05
0.15
0.11
0.12
0.12
Average
2007-2012
0.15
0.08
0.15
0.17
0.13
0.13
If we exclude sugar, since 1996, price volatility of agricultural commodities (wheat,
soybeans and corn) was somewhat more acute for the period 2007 to 2012 than for 2002
to 2006.
The years 2007-2012 witnessed a number of global agricultural market crises (20072008, 2010-2011, summer 2012) with strong commodity price volatility (sugar, soybeans,
wheat and corn). During this period, sugar (ratio of 0.15) and wheat (0.17) prices were as,
or more, volatile than those of oil (0.15). This growing instability tallies with the creeping
“financialisation” of agricultural markets during the 2000s.
12
Sugar prices (New York) – In US cents per pound
33
28
23
18
13
8
20072007200720072007200720082008200820082008200820092009200920092009200920102010201020102010201020112011201120112011201120122012201220122012
Source: Insee, December 2012
Since 2009, the price of sugar has witnessed a succession of peaks and troughs. Some of
the many reasons include lower and higher yields depending on the year (varying weather
conditions), shifts in global demand (emerging countries’ growth, stagnation in developed
nations, connected with the economic crisis), correlation with oil prices (sugarcane is
more widely used to produce ethanol when oil prices soar) and investment fund
intervention which could increase the extent of price fluctuations.
b) There is no clear link with the growing “financialisation” of agricultural commodity
markets
There is no irrefutable proof that speculation is responsible for the considerable recent
volatility. It is often claimed that derivatives markets ignore the cornerstones of the real
economy (supply and demand levels) focusing solely on financial criteria and that they
magnify price hikes by causing speculative fervour which is passed on to physical
markets. The repercussions cannot be easily assessed as the vast majority of transactions
are carried out on OTC markets where transparency is limited and on which the total
number of transactions is hard to calculate.
Derivative markets and physical markets (spot) are not systematically related. A very
large number of derivatives contracts may govern an actual delivery of a volume of
commodities. On agricultural markets, less than 1% of transactions are followed up by a
delivery8.
8
See Centre d’analyse stratégique, Policy Brief 206, January 2011, page 8 (in French),
http://www.strategie.gouv.fr/content/note-d%E2%80%99analyse-206-volatilite-des-prix-des-matieres-premieres-volet1-janvier-2011.
13
The two different markets can be connected by the economic concept of warehousing by
looking into the reasons why physical inventories are held. The fact that there are no
arbitrage opportunities between physical markets and futures markets means that the
forward price must be the same as the spot price plus the cost of warehousing and the
interest rate, less the convenience yield9. The latter is the return on inventories and it
increases with scarcity. Inventories thus represent the connection between spot prices
(physical markets) and forward prices (financial markets). So, if forward prices are higher
than spot prices, inventories will build up.
3) The 2007-2008 food crisis revealed the connection between price fluctuations on
global markets and changes to consumer food prices
The 2007-2008 global food crisis triggered a very sharp rise in the price of basic food
items in the poorest countries. This in turn led to political unrest and food riots in several
parts of the world.
Changes in the FAO Food Commodity Price Indices, 2000-2012, base 100 = 2002-2004
400,0
350,0
300,0
250,0
200,0
150,0
100,0
50,0
2000
2001
2002
2003
2004
2005
The FAO Food Price Index
The FAO Dairy Price Index
The FAO Oils/Fats Price Index
2006
2007
2008
2009
2010
2011
2012
The FAO Meat Price Index
The FAO Cereal Price Index
The FAO Sugar Price Index
Source: FAO, December 2012
Most food commodity prices (FAO indices) ballooned between 2006 and 2008. The
figures were +25.3% between 2006 and 2007 and +25.9% between 2007 and 2008:
Meat
Dairy products
Cereals
Oils and
fats
Sugar
2006-2007
+5.6%
+66.0%
+37.2%
+51.2%
-31.8%
2007-2008
+22.5%
+3.4%
+42.5%
+33.6%
+27.0%
Source: FAO, December 2012, DGCCRF calculations, December 2012
9
See Centre d’analyse stratégique, Policy Brief 206, January 2011, page 8 (in French).
14
For these two years, there were significant across-the-board price rises for the food
commodities monitored by the FAO. Only the curve for sugar has been different since
2005. In spite of a sharp drop in 2009, prices took off again in 2010-2011.
There are many reasons for these runaway prices. One contributory factor has been the
increased purchasing power and demand in emerging countries illustrated by greater
demand for meat and dairy products in China and, as a result, for grains and oilseeds for
animal feed. On the supply side, weather conditions in 2007, such as the drought in
Africa and flooding in South America, meant lower agricultural yields. Some
commentators contend that somewhat low prices for agricultural commodities around the
turn of the century stifled capital expenditure and, consequently, increases in yields. This
happened at a time when global demand was taking off and production was being partly
geared towards new usages, one of which was the development of agrofuels. Lastly,
soaring oil prices have increased costs and agricultural commodity prices.
The impact on consumer prices differs depending on a country’s stage of development
and the way it does business. It is strongest in emerging and developing countries where
consumers spend more of their income on food. Eurostat data for 2007 showed that
household expenditure on food and non-alcoholic beverages accounted for 25.4% of total
consumption expenditure in Turkey as against 11.0% in Germany and 13.1% in France10.
In France, a common thread has emerged in recent changes to the prices of agricultural
commodities and consumer food prices.
Changes in the prices of the three main agricultural commodities in US cents 1995-2012
1580
1380
1180
980
780
580
380
180
juil-98
juil-00
juil-02
juil-04
juil-06
juil-07
juil-08
juil-09
juil-10
juil-12
janv-95juil-95
janv-96juil-96
janv-97juil-97
janv-98
janv-99juil-99
janv-00
janv-01juil-01
janv-02
janv-03juil-03
janv-04
janv-05juil-05
janv-06
janv-07
janv-08
janv-09
janv-10
janv-11juil-11
janv-12
wheat
soybeans
corn
Source: Insee, December 2012.
10
See DGCCRF-éco No. 4, “Changes in food expenditure and how prices have impacted on French and European
households’ consumption since 1959”, May 2012,
http://www.economie.gouv.fr/files/files/directions_services/dgccrf/documentation/dgccrf_eco/dgccrf_eco4.pdf.
15
Mushrooming prices for imports of agricultural commodities are passed on to consumer
food prices. This concerns directly imported products or those produced domestically
using imported commodities. Several factors govern this knock-on effect including the
extent of product processing by domestic businesses and how sellers set their margins
throughout the production and distribution processes. Some importers elect to pass on the
entire price increase whilst others only pass on a part of it with an eye to winning over
market share. These approaches depend on both the amount of competition on the market
(for example, the concentration level of retail and distribution sectors) and on the price
elasticity of demand for the goods.
According to the National Institute of Statistics and Economic Studies (Insee)11, all
along the supply chain, the passing on of both rising and falling global agricultural
commodity prices to consumer food prices is subject to a total time lag of two to
three quarters. First, increases in commodity prices impact on agricultural production
prices in less than a quarter. Rising agricultural prices are then passed on after another
quarter to the agri-food industry before impacting on consumer food prices a quarter later.
Minimum time lag for impact on consumer prices: 2 to 3 quarters
Downstream
Upstream
Global prices
Price change
Agricultural
production
prices
Industrial
production
prices
Consumer
prices
Passing on
immediate or
1 quarter
1 quarter
1 quarter
Source: Insee, presentation: DGCCRF
11
See Insee Study of Economic Conditions, December 2007 (pages 94 and 95) and December 2010 (pages 68 and 69).
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Nevertheless, surging agricultural commodity prices do not affect all products in the same
way.
The connection between wheat prices and the cost of a baguette
The cost of a baguette rose 9.2% between August 2006 and the same month in 2008
(source: Insee, monthly average consumer prices, baguette) with wheat prices in Chicago
exploding by 114.7% over the same period. Over these two years, correlation between
these prices was relatively strong (0.91). This is an example of the impact of fluctuations
in the global price of a commodity on an everyday food product. That said, other
considerations such as labour, energy and equipment costs need to be factored in when
calculating the overall production cost.
August 2006- August 2008
Wheat price:
+114.7%
Price of a
baguette:
+9.2%
Correlation: 0.91
Source: Insee, DGCCRF calculations, March 2013
Changes in wheat prices in Chicago and in the retail price of a baguette in France, 2005-2012
1150
3,5
1050
950
3,4
850
Price in US cents
Price 3,3
in euros
750
3,2
650
550
3,1
450
3
350
2,9
250
juil-05
juil-06
juil-07
juil-08
juil-09
juil-10
juil-11
juil-12
oct-05
oct-06
oct-07
oct-08
oct-09
oct-10
oct-11
oct-12
avr-05
avr-06
avr-07
avr-08
avr-09
avr-10
avr-11
avr-12
janv-05
janv-06
janv-07
janv-08
janv-09
janv-10
janv-11
janv-12
Monthly average consumer prices in mainland France - Baguette (kg), in euros
Wheat prices (Chicago) – Price in US cents per 60-pound bushel
Source: Insee, March 2013.
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The connection between wheat prices and the cost of pasta
The cost of pasta climbed 28.2% between August 2006 and the same month in 2008
(source: Insee, monthly average consumer prices, superior pasta) with wheat prices in
Chicago exploding by 114.7% over the same period as mentioned above. Over these two
years, correlation between these prices was less (0.73) than for the baguette example yet
was still noteworthy.
August 2006- August 2008
Wheat price:
+114.7%
Price of
superior pasta:
+28.2%
Correlation: 0.73
Source: Insee, DGCCRF calculations, March 2013
Changes in wheat prices in Chicago and in the retail price of superior pasta in France, 2005-2012
0,93
1150
1050
0,88
950
850
Prix in US cents
Price0,83
in euros
750
650
0,78
550
450
0,73
350
0,68
250
juil-05
juil-06
juil-07
juil-08
juil-09
juil-10
juil-11
juil-12
avr-05
oct-05
avr-06
oct-06
avr-07
oct-07
avr-08
oct-08
avr-09
oct-09
avr-10
oct-10
avr-11
oct-11
avr-12
oct-12
janv-05
janv-06
janv-07
janv-08
janv-09
janv-10
janv-11
janv-12
Monthly average consumer prices in mainland France – Superior pasta (500g)
Wheat prices (Chicago) – Price in US cents per 60-pound bushel
Source: Insee, March 2013.
The Insee’s statistics also show significant correlation (0.85) between the international
cereals price index and the consumer price index for biscuits and cakes between 2000 and
2012. Over the same period, there was less correlation (0.67) between the international
sugar price index and the consumer price index for sugar-based products.
The effects are more diluted in other agri-food industry sectors. The more products
are processed, the less commodities dictate prices. For example, correlation was low (0.38) between the international cereals price index and the consumer price index for
cereal-based prepared meals between 2000 and 2012. As previously mentioned, other
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considerations such as labour, energy and equipment costs need to be factored in when
calculating the overall production cost.
The Economic and Price Monitoring Bureau (1B) of the DGCCRF (Directorate General for Competition
Policy, Consumer Affairs and Fraud Control) establishes and introduces measures to bolster economic
transparency of the manufacturing and marketing processes for goods and services. This means that it is
able to base its analyses in this area on objective and common factors. Its work involves price analysis and
monitoring formation mechanisms for prices and margins, in conjunction with other relevant monitoring
centres. It also produces economic studies for the Directorate and is tasked with its in-house documentation
and economic monitoring responsibilities. Lastly, it carries out statistical analyses of the consumer
complaints register.
Address:
Ministère de l’économie et des finances - DGCCRF
Bureau de la veille économique et des prix (1B)
Teledoc 052
59 boulevard Vincent Auriol
75703 Paris Cedex 13
FRANCE
Email: [email protected]
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