ABSTRACT
The sudden and unpredictable large increases (spikes) of many internationally traded food commodity prices in late 2007 and early 2008 caught all market participants, as well as governments, by surprise and led to many short-term policy reactions that may have worsened the price rises. Many governments, think-tanks and individual analysts called for improved international mechanisms to prevent and/or manage sudden food price rises. Similar calls for improved disciplines of markets were made during almost all previous market price bursts, but were largely abandoned after the spikes passed. The financial crisis that started to unravel in 2008 has coincided with sharp commodity price declines, and food commodities have followed this general trend. The price volatility has been considerable. For instance, in February 2008, international wheat, maize and rice price indices stood higher than the same prices in November 2007, namely only three months earlier, by 48.8, 28.3 and 23.5 per cent respectively. In November 2008, the same indices stood at −31.9, −3.2 and 52.3 per cent higher respectively, compared to November 2007. In other words within one year these food commodity prices had increased very sharply in the first part of the year, and subsequently declined (except rice) equally sharply. Clearly such volatilities of world prices create much uncertainly among all market participants, and make both short- and longer-term planning very difficult for all.
