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Factors Affecting
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Prices of Agricultural
Products
Lizi Basilia

M Guram Kumelashvili
Anna Manukyan
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Table of Contents
» Introduction
» Macroeconomic determinants of agricultural commodity prices.
Factors influencing the increase in prices in agricultural markets
after 2006
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» Adverse global changes of supply-demand relations

» Loose economic policy and restrictions in trade policy
» Depreciation of the dollar and the growing importance of
speculation and activity of investment funds in commodities’
markets
» Conclusion

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Introduction World Food Price Index

Столбец2

250
Agricultural commodity prices are the 229.9
213.3 209.8
result of the interaction of many factors, 201.4 201.8
200 188
including basic aggregates of market – 174.6 171.4
168.4
161.4 160.3 164 161.5
supply and demand. There are complex
150
linkages between them and they are 118
127.2
112.7
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further modified and distorted by the 97.7

100
89.6

action of government and government

policies. Thus it is fully justified to say 50

that the increases of agricultural raw

materials’ prices, which have taken place 0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

in recent years, were the result of many

Figure 1
factors. Source: FAOSTAT

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Macroeconomic determinants of agricultural

commodity prices.
To identify the most important determinants of agricultural commodity prices after 2006 in global
context it is worth indicating the macroeconomic price-setting actors, which are typical for current
economies These factors include, among others
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» fiscal policy by shaping the budget,

» the supply-side factors
» monetary policy, mainly due to real
» the demand-side factors
interest rates,
» other factors, including supply-
» trade policy and its instruments
demand factors and associated with
regarding both the export and import,
the economic interventionism
» exchange rate policy,
» sectoral policies, including the
framework of the agricultural policy
and energy policy
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Macroeconomic determinants of agricultural commodity

prices.
Increase Of Agricultural
Commodities Prices

Supply shocks, adverse, etc Adverse changes in supply – demand Population growth
relations

Declining stocks Economic development, e.t.c

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Slow growth Lose monetary policy

Rising population costs Supply Demand Dollar depreciation

Restrictive trade policy Speculation

Increased production of liquid

High crude oil prices

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biofuels
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Adverse global changes of

supply-demand relations

» negative supply shocks as the consequences of

climate changes and adverse weather conditions

» decrease in stocks of primary agricultural

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commodities;

» the slow growth of productivity of crops which

was the result of low earlier investments in the
development of biological progress in
agriculture.

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Loose economic policy and

restrictions in trade policy

Expansionary economic policies, mainly monetary but

also fiscal and restrictive trade policy favour growth of
prices. A monetary expansion expressed, inter alia, by
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the low interest rates, was one of the key drivers of

food and commodity prices after 2006, which showed
the British economist, C. L. Gilbert in their study
based on the Granger causality test. The importance of
monetary policy was pointing to the simple negative
correlation between the level of real interest rates and
the prices of agricultural commodities.

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Depreciation of the dollar and the

growing importance of
speculation

• As explained by B. Kretschmer, C. Bowyer and A. Buckwell,

currently most commodities are denoted and traded in US Dollars.
If there is a depreciation of the dollar, the agricultural
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commodities become relatively cheaper in other currencies. This

in turn results in an increase in demand for these commodities,
which, with a constant supply, leads to increases of their prices. It
is difficult or even impossible to estimate the future impact of this
factor on agricultural markets, because exchange rates are shaped
by a number of macroeconomic factors both endogenous and
exogenous. For this reason, fluctuations in exchange rates may
remain a key factor determining the prices of agricultural raw
materials in the future.

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Conclusion
» In 2008 and 2011 there were broad increases in the prices
of most agricultural commodities globally. They were
results of both supply-side and demand-side factors.
» An increasing biofuels production has influence on
agricultural commodity markets in two dimensions.
» According to the authors exchange rates movements and

M speculations were important too.

 10 References:
» Borychowski M., Czyżewski A., (2015),
Determinants of prices increase of agricultural
commodities in a global context. Management.
Vol.19, No. 2
» Abbott P. C., Hurt C., Tyner W. E., (2008), What’s
Driving Food Prices?, Farm Foundation Issue
Report, Oak Brook, IL.
» Baffes J., (2009), More on the Energy/Non-Energy
Commodity Price Link, The World Bank,
Development Prospects Group, Global Trends
Team, Policy Research Working Paper 4982

THANK YOU FOR

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YOUR
ATTENTION!
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