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8 CHAPTER 2


5. Variations among wheat, maize, and soybean markets. Despite being generally inelastic goods, Schepf (2006) notes important variations among these grain markets. He argues that U.S. wheat prices are generally more stable than maize prices because (i) there are two crops annually for U.S. wheat; (ii) there are two counterseasonal southern hemisphere grain exporters (Australia and Argentina); (iii) there are price-stabilizing U.S. government policies for wheat; and (iv) feed demand can act as a price buffer for wheat. Soybean prices might also be less volatile because of more elastic demand (soybeans are mostly used as feed, for which there are substitutes), the rarity of trade restrictions on soybeans, and the existence of important counter-seasonal southern hemisphere producers (Brazil and Argentina). But soybean prices could be sensitive to demand shocks, because China and the European Union (E.U.) account for almost two-thirds of global imports. In contrast to wheat and soybeans, maize exports are heavily dominated by the United States (two-thirds of the global share), making the maize market very sensitive to events in the United States.


6. Peculiarities of the rice market. As Timmer (2009) discusses, rice markets are very distinctive in that (i) only about 6 percent of global rice produc- tion is exported; (ii) exports are dominated by Asian countries, such as Thailand, India, and Vietnam; (iii) most exporters and many importers of rice impose substantial barriers to trade; (iv) rice is extensively produced and traded by smallholders and small traders; and (v) demand for rice is highly inelastic, as it is the major food staple for millions of people in Asia in particular. Hence, international rice prices are generally more volatile than those of other grains, although domestic prices in Asia are much more stable.


Facts of the Crisis Itself


The basic price-formation framework illustrated in Figure 2.1 and the facts listed in the previous section provide us with a useful platform for inves- tigating the causes of the crisis, although they make no specific mention of the events leading up to it. Hence in this section we focus on the facts pertaining to the crisis itself. Figure 2.2 presents long-term data on export prices from 1960 to mid-2008 for four major staples—maize, rice, soybeans, and wheat—as measured in key markets in the United States and, in the case of rice, key markets in Thailand. All measures are deflated using the U.S. Bureau of Economic Analysis gross domestic product (GDP) deflator. Some of the same data are also used to more narrowly examine the growth rates of real prices over particular periods of interest (Table 2.1). In addition, price changes are included for a wider range of commodities categorized into


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