Influences of Agricultural Technology on the Size and Importance of Food Price Variability
Technological change in agriculture affects the variability of food prices both by changing the sensitivity of aggregate farm supply to external shocks and by changing the sensitivity of prices to supply or demand shocks. At the same time, by increasing the general abundance of food and reducing the share of income spent on food, agricultural innovation has made a given extent of price variability less important. This chapter explores these different dimensions of the role of agricultural technology in contributing to or mitigating the consequences of variability in agricultural production, both in the past and looking forward. A conceptual overview is provided of the mechanisms whereby agricultural innovation can change the extent of price variability and its implications. A review of patterns of production, yields, and prices for the major cereal grains over the period since World War II indicates that technological change has contributed significantly to growth of yields and production and to reducing real prices, but has probably not contributed to increased price variability. An illustrative analysis using simulations of the global economy to 2030 shows that technical change reduces the importance of variability for the poor--especially by reducing the number of poor.
The work for this project was partly supported by the University of California; the University of Minnesota; and the Giannini Foundation of Agricultural Economics. The authors gratefully acknowledge excellent research assistance provided by Jason Beddow, Maros Ivanic, Connie Chan-Kang, and Kabir Tumber and helpful comments and advice from various colleagues including Jock Anderson, Steve Boucher, Brian Buhr, Derek Byerlee, Michael Carter, Doug Gollin, Terry Hurley, Travis Lybbert, Ed Taylor, and Dan Sumner.
William J. Martin
This work benefitted from support by the Multi-donor Trust Fund for Trade at the World Bank.