Download PDF

An Outlook of World food prices and
Macroeconomic Indicators in 2020
A Sensitivity Analysis of Different Baseline Scenarios Using GTAP
Fan Yang and Martina Brockmeier
[email protected]
Institute of Agricultural Economics and Social Sciences in the Tropics and
Subtropics - International Agricultural Trade and Food Security
University of Hohenheim, Stuttgart, Germany
2012
Paper on the occasion of the
52nd GEWISOLA Annual Conference
„Challenges of Global Change for Agricultural Development and World Food Security“
Universität Hohenheim, September26 – 28, 2012
Copyright 2012 by authors. All rights reserved. Readers may make verbatim
copies of this document for non-commercial purposes by any means, provided
that this copyright notice appears on all such copies.
An Outlook of World Food Prices and Macroeconomic Indicators in 2020 A Sensitivity Analysis of Different Baseline Scenarios Using GTAP
Fan Yang and Martina Brockmeier1
1 Introduction
The skyrocketing prices of major agricultural commodities in 2007/08 threw millions of people into hunger. Recent occurrence of global crop shortage due to extreme weather condition
causes more turmoil in world food market. A great amount of literatures has already intensively discussed the drivers and characters behind world food prices. This paper attempts to
contribute to these analyses and generate further insights.
Most papers state that a nested combination of both supply and demand fundamentals contributes directly to the turbulence of world food prices. Meanwhile, arising roles of nontraditional market drives including the stringent linkage between food and energy market,
speculation of agricultural derivatives and fluctuation of the Dollar gain more attention
(Baffes and Haniotis, 2010). In this paper we utilize the well-developed CGE modeling
framework GTAP, and establish diverse baseline scenarios in order to capture the impact of
macroeconomic development on world food market. Furthermore, a breakdown of the results
enables us to distinguish the impact channel.
A general conclusion indicates an entrance of the "age of high food prices". Results provide
possible aspects of global food production, consumption and trade. Yet, a number of caveats
need to be noted with regard to the inclusion of energy constrains in baseline construction and
other modeling issues.
2 Data and Methodology
A baseline indicates how the economy might be expected to change over a given period without implementing policies under consideration (Chappuis and Walmsley, 2009). The expansion of population, growth of GDP and evolution of factor endowments facilitate a general
insight into the future of the development of an economy. In most CGE model such as GTAP,
GDP growth is originally treated as an endogenous variable. A reasonable approach to tackle
this issue would be to swap GDP development with regional technical improvement in order
to observe the impact of economic growth on world food market.
In this paper, we employ the GTAP modeling framework with a static CGE approach. The
GTAP version 8 database covers 57 different industries of 129 countries/regions with the
benchmark year 2007. Aggregation in our simulation groups countries according to the level
of economic development. The forecast of macroeconomic trend relies on various sources of
Databases (USDA et al., 2012). By applying the change of GDP, population and endowments
from 2007 to 2020 in the experiment, a new market equilibrium depicting global economy is
reached. Additionally, two other scenarios are conducted. The first one refers to an overexpansion of population while the other one indicates an economic contraction.
3 Results and Qualification
Results show that after the price peak of2007/2008, prices of agricultural raw materials are
expected to go through an upward trend within the range between 5% and 15%. Consequently,
it reinforces prices for processed food, although the increase is modest in our results. This is
1 Institute of Agricultural Economic and Social Sciences in the Tropics and Subtropics, International Agricultural Trade and Food Security (490B), University of Hohenheim, 70593 Stuttgart, Germany,
[email protected]
partially due to a relative more extensive use of skilled labors in processed sectors, which is
expected to enjoy accelerated growth over the next decade than unskilled labors. Nevertheless,
other factors such as technical change, substitution elasticity of input factors, etc. can also
alter the linkage between agricultural raw materials and processed food.
Global agricultural consumption and production are expected to enhance over the next decade,
with robust growth particularly in China, middle-income Asia countries, Sub-Sahara African
and least developed countries. The breakdown of macroeconomic indicators shows, that population growth constitutes the main driving force of consumption for primary goods in industrialized countries, while purchases of processed products is urged by economic growth. At the
same time, economic growth in developing countries contributes for consumption of both
primary and processed goods. The outcome of production is rather a mixed effect of all the
drives, yet development of skilled labor and capital are the main ones.
With regard to international market, we observe a general improvement of trade balance for
industrialized countries, while the situation is deteriorating for developing countries. Likewise,
this corresponds to the prosperous economic situation and growth of population in the developing countries, which requires more import to meet the demand of consumption. Taking
China for instance, significant increase of imports can be observed for oilseeds, meat and other processed food.
Since population and GDP are the two most important drives from the supply and demand
side, altering the future paths of them may differentiate the results. Indeed, a related sensitivity analysis suggests that an over expanded population or a pessimistic outlook for the economy may both push up world food prices. However, better combination of endowments input
would revise the situation.
The results listed above manifest a possible expansion of economies in the future. Due to the
complexity of world food markets, further research is needed to cure the following limitations
in the current study. First, the implicit consideration of biofuel and land use in the GTAP
model influences results, particularly for sectors like sugar and vegetable oils. Second, variations in the database of macroeconomic indicators lead to alternative results that might lead to
further insides. Third, better treatment of capital growth needs to be taken into account since it
has the largest impact on prices. The standard GTAP model has no specific treatment of international capital flow, which may cause biased results. Fourth, since the baseline is conducted
under a static CGE framework, the time path and structural change is difficult to capture, e.g.,
the economic boom in emerging economies may alter the consumption preferences on value
added products, which requires further calibration of e.g., income elasticity and substitution
elasticity.
References
Baffes, J. and Haniotis, T. (2010): Placing the 2006/08 Commodity Price Boom into Perspective. The World Bank Development Prospects Group. Policy Research Working Paper, 5371.
Chappuis, T., and Walmsley, T. (2011): Projections for World CGE Model Baselines. GTAP
Research Memorandum No.22.
Foure, J., Benassy-Quere, A. and Fontagne, L. (2012): The Great Shift: Macroeconomic Projections for the World Economy at the 2050 Horizon, CEPII Working Paper 2012-03.
KC, S., Barakat, B., Goujon, A., Skirbekk, V., Sanderson, W. and Lutz, W. (2010): Projection
of Populations by Level Of Educational Attainment, Age, and Sex For 120 Countries for
2005-2050. Demographic Research , 22(15): 383-472.
UN (2010): 2010 Revision Of World Population Prospects.
USDA (2012): International Macroeconomic Data Set.