Download Measures to Reduce Price Volatility

Measures to Reduce Price Volatility
David Hallam
Trade and Markets Division, FAO
Responding to food price volatility
• Three price spikes in five years – keen interest in price stability
• Limiting price volatility on international markets
• enhancing transparency and policy coordination
• regulating speculation? biofuel policy reform? buffer stocks??
• Limiting price volatility on national markets
• stocks and reserves?? trade policy??
• Managing the negative impacts of volatility
• targeted safety nets; emergency reserves
• subsidies?
• Investment to increase productivity, make markets work and enhance
resilience to food price volatility in the medium-term
Focus on two measures :
1. Enhancing market transparency and policy
coordination through improved information
systems – the story of AMIS
2. Reserves and stabilization – a current debate
Why AMIS?
Food Price Crisis and Lack of Policy Coordination
• 2007-2008 Food Price Surge: International prices peak in June
2008 - up 80 percent in two years!
Problems to Solve
• Lack of reliable and up-to-date information on supply, demand,
stocks and export availability
• Weaknesses at national level to produce consistent, accurate and
timely agricultural market data and forecasts
• Inadequate information on stocks, domestic prices, and linkages
between international and domestic markets
• Inappropriate and/or uncoordinated policy responses to market
crisis
Creation of AMIS …
• G20 Seoul Summit (November 2010) – Food security
identified as one of the key pillars of the Multi-Year Action
Plans for Development.
• International organizations report (June 2011) on Price
Volatility in Food and Agricultural Markets calls for the
establishment of an Agricultural Market Information System
(AMIS) to enhance the quality, timeliness and reliability of
food market information.
• G20 Agriculture Ministers Meeting (June 2011) adopts the
Action Plan on Food Price Volatility and Agriculture.
 Launch of AMIS to increase market information and
transparency (September 2011).
 G20 + 7 additional members
AMIS objectives
• Improve agricultural market information, analyses and
forecasts at both national and international levels – Market
Information Group
• Report on abnormal international market conditions
including structural weaknesses, as appropriate
• Strengthen global early warning capacity
• Collect and analyse policy information, promote dialogue
and international policy coordination – Rapid Response
Forum
• Build data collection capacity in participating countries
AMIS Outputs
Statistics
•AMIS statistical database provides supply and demand statistics on AMIS-covered commodities (wheat,
rice, maize, soybeans) for the participating countries and allows extraction/comparison of the latest data
from different sources
Indicators
•Identification of priorities, assessment of needs and information to define a set of indicators enabling
AMIS to detect heightened market vulnerability
Forecasts of supply-utilization account variables
Market analyses on topical issues and to support indicator development
Market Monitor
•Release of regular reports on market conditions, that reflect the unique data and information collected by
AMIS
Capacity Development
•Support to AMIS member countries for improving statistics and market analysis mainly extra budgetary
funding
Governance
•AMIS Steering Committee acts as managing body of the Secretariat, with a clear governance structure
defining tasks and responsibilities of the Secretariat members
•Rapid Response Forum and Market Information Group
Market problems in 2012 but no need for the
Rapid Response Forum
• US drought affects maize
prices and wheat prices
follow – grain prices
increase 25% in July
• Need for a meeting of the
RRF?
• Why it was not a “crisis”
• Black Sea region drought
adds to problems –
continuing threat
More information
www.amis-outlook.org
Stocks and price volatility
• Stock-price relationships
• Roles of stocks
– emergency reserves broadly accepted
– renewed interest in price stabilization but …
• National, regional and global stocks
• Long history of discussion of food reserves
• Experience with commodity agreements with
economic clauses
Can stocks be used to reduce price
volatility?
• What is the relationship between stocks and
prices?
• What does the econometric evidence show?
• Can the relationship be exploited to actively
manage prices?
• What are the practical problems of managing
stocks to stabilize prices?
• FAO Expert Meeting on Stocks, markets and
stability, January 2014.
Stocks and prices
• Is there a stable relationship?
• Supply of storage model
• Price stability does appear to be associated
with higher stocks levels
• Econometric studies and evidence
– data problems
– structural breaks
Can the relationship be exploited to
actively manage prices?
• Examples of public stockholding but mainly for
emergencies
• High costs – set-up and market operations
• Operational issues
• Political interference and lobbying
• Not an effective instrument for price
stabilization