A new vision for agriculture
momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.
It brings together, managers from the agricultural world and important people from external perspectives,
such as health, development, strategy and defense. Its objective is to promote regulation
of agricultural markets by creating new evaluation tools, such as economic models and indicators,
and by drawing up proposals for an agricultural and international food policy.
Personal accounts

The first economic model on agricultural volatility

Interview de Bertrand Munier,
chief economist of momagri
& Peter Timmer,
Professor Emeritus of Economics at the University of Harvard, USA

On June 4th and 5th 2009, at la Sorbonne in Paris, momagri, brought together around thirty of the best international agricultural economists, for a workshop focused on the agricultural risks and market volatility. This workshop was an opportunity to take a critical look at the momagri economic model, the only one that modelizes today the volatility of agricultural rates and taking into account speculation on the futures markets. An article on the momagri model has been published on the SSRN “Social Science Research Network” in November 2009. In the beginning of 2010, Professors Bertrand Munier, chief economist of momagri, and Peter Timmer, Professor Emeritus of Economics at the University of Harvard, look back at what was learned from this workshop.
momagri has run simulations to assess the impact of total liberalization of agricultural exchanges. What have you been able to learn from this?

Bertrand Munier – The momagri model is indeed almost totally completed: the “Central”, “Risk”, “Innovation” and “Impacts on agricultural versus non agricultural” modules have been finalized. We are in the process of creating the “Environment and sustainable development” module. In March 2008, through our simulations we were able to identify as one of the probable outcomes of the year the scenario of a significant drop in the prices of the main agricultural products, including cereals and breeding products. At the same time, the gurus and standard market models were predicting stability or a slight increase in the price of wheat.

At the moment you are working on the relationship between stock levels and speculation. Can you say a few words about this?

Bertrand Munier – More generally, what we learn from the momagri model is that agricultural markets are now, whether we like it or not, part and parcel of the speculative financial markets. Stock levels on such markets are of prime importance. One of the most clearly established conclusions is that a drop in stock levels of raw materials leads to greater volatility in prices, whether they concern products necessary for farmers or agricultural products themselves. Our studies of the year 2008-2009 confirm these results. Yet over the past few years, not only have stocks reached their lowest historical level ever, but new operators have appeared on these markets for raw materials (and not only those of oil!). These operators are not buyers of products, nor are they sellers in the usual sense, but short-term investors who buy to resell, making a profit if possible. Therefore it is impossible to provide a picture of agricultural markets that doesn’t include these new players. They change this picture completely: prices depend more on anticipations, apprehension of the context, attitudes to risk, etc., just like on all financial markets. The stubborn conventional approach of many economists, who only consider supply, is the source of a major misunderstanding. Before, we can say it was inaccurate, but today it is no less than a mistake. If we abandon the theories of the past, price volatility appears as virtually inevitable if no measures are taken to stop it. What is needed is permanent regulation of most agricultural markets, in the same way that it has finally become acceptable to regulate financial markets. And if we regulate financial markets without regulating agricultural markets, volatility of agricultural prices will increase to levels that will soon be records too! These are some of the things the momagri model has clearly demonstrated.

You participated in the Workshop last June, could you quote two or three points of relative consensus that emerged from that meeting of some 30 economists?

Peter Timmer: I think there were three points of general agreement. First, everyone agreed that relative stability for staple grain prices, especially the avoidance of sharp price spikes, is extremely important to economic welfare. Second, there is no market mechanism that “supplies” this stability, so government intervention is necessary into formation of market prices. Third, this intervention must work through the market to be successful, not by displacing the market. The challenge remains for governments to find an effective and efficient way to do this.

You did yourself present a paper on the volatility of some commodity prices in Asia. Did speculation play a role in that process?

Peter Timmer: The answer to this question is still surprisingly controversial. I just attended a workshop on this very topic at FAO/Rome, and commodity exchange representatives and a number of academics deny the impact of speculation on the spike in food grain prices. My own paper shows clearly that speculative hoarding caused the price spike in the world rice market, but this was not primarily driven directly by financial speculation. My own belief is that financial speculation, in its broadest form, played a significant role in driving petroleum prices, and then staple food prices other than rice, to their peaks in late 2007 and early 2008.

Bertrand Munier – Profile

Bertrand Munier, chief economist of momagri, is Professor of Universities in Economics and Management at the Arts et Métiers ParisTech business school, and also Professor at ESTP public works school and at the IAE business school in Paris (Sorbonne). He is one of the French specialists on risk and uncertainty. He graduated with Honors from the Institute of Political Studies in Aix-en-Provence, France, and then furthered his education in the United States at the Universities of Yale and Princeton. He founded the “GRID”, Research Group on Risk, Information and Decision, UMR CNRS (1991-2007), and was also Director of the Department of Economics and Management at ENS Cachan.

Peter Timmer – Profile

Professor Emeritus of Economics at the University of Harvard. Professor at the University of Stanford, Peter Timmer is an expert on questions of food security in the American think tank “Center for Global Development”. He mainly researches into growth in poor countries, and more particularly in Asian countries. Peter Timmer was one of the experts chosen to write the “World Development Report” of 2008 in which the World Bank emphasized the importance of the agricultural sector and its strategic dimension.

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Paris, 20 June 2019