Is there a reversal in the long-term decline of real prices of agricultural commodities?
After several decades of surpluses and low prices, international prices of most agricultural commodities seem to have moved to high or even record price levels. High price levels could stay with us for several years to come. Nonetheless, it is important to put these higher price levels into perspective. In real terms, current commodity prices are similar to the highs experienced during the Asian crisis in the mid 1990s and are much lower than the levels observed in the 1970s. The large subsidies granted to agriculture by OECD countries are the main reason for previous low world prices. A move away from such policies, together with resource constraints, such as water scarcity and a slower diffusion of existing and new technologies, could restrain growth of food supplies, while world demand continues to expand. Against this background, it seems to be unlikely that food commodity prices will return to the lows of the previous two decades.
