World Food Policy Volume/Issue 2-2/3-1 Fall 2015/Spring 2016 | Page 141

World Food Policy

of agricultural commodities in 2007 and
subsequent years,5 and the more recent
dramatic decline of oil prices is most likely
also one of the reasons why agricultural
commodity prices are now declining.
Many observers, though, consider the
current low level of oil prices to be a
transitory phenomenon and expect oil
prices to attain a much higher level again in
the future. The 2015 OECD/FAO Outlook
also expects oil prices to rise again in
the future, and this is one of the factors
explaining the relatively high expected
level of future prices for agricultural and
food commodities.

But there are also two more specific
agricultural elements in this price picture.
One is the fact that, beginning in the early
2000s, a rapidly increasing share of global
output of agricultural commodities is being
used to produce biofuels, in particular
coarse grains and vegetable oils (Figure

6). A share in the order of magnitude of
12%–13% of world output of these two
commodities is now taken away from the
food market and channeled into a different
market, i.e., for energy production. Some
of that is happening because of market
developments. But the largest part of
it—and OECD has analyzed that very
carefully—is a result of government
policies in the form of mandates,
production subsidies, use subsidies,
quotas, and other equivalent measures.
This means that this totally new factor
behind the development of world markets
for agricultural commodities is largely
policy driven. Within a ~10 year period a
very large amount of additional demand
that did not exist in the past has entered the
market for agricultural products and has
certainly driven up prices.6 It is probably
no exaggeration to call this a structural
shift of market conditions in world

Figure 6: Share of Use for Biofuel Production in Global Output of Selected Agricultural Commodities
Source: Author’s calculations based on OECD–FAO (2015)
5

See Tangermann (2011) and the literature referenced there.
For an early analysis of the economic implications of biofuel support policies, including consequences for agricultural commodity markets, see OECD (2008).
6

141