Page 1 of 16

Journal for Studies in Management and Planning

Available at http://edupediapublications.org/journals/index.php/JSMaP/

ISSN: 2395-0463

Volume 03 Issue 08

July 2017

Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 368

Price Trends and Volatility in Agricultural Commodities

Vikas Kumar & Sunil Phougat

Research Scholar, Department of Economics, M.D. University Rohtak (Haryana)

Assistant Professor, Department of Economics, Govt. College Jassia, Rohtak (Haryana)

Abstract

The present study is mainly focused on the

price trends and volatility in agricultural

commodities. It has observed in the study that

international prices of agricultural

commodities are highly volatile and are

characterized by cyclical variations. Among

these, prices of food grains, sugar and cotton

have fluctuated around a static mean

whereas prices of dairy products and fish

have been moving up and down around a

rising trend. However, due to WTO

commitments, domestic produces can’t be

protected from international price shocks. If

such shocks are transmitted to farm level, it

would destabilize the crop pattern and

supply. Since vast majority of the Indian

farmers is either small or marginal, they do

not have resources and capabilities to

change their cropping patterns in a short

period as necessitated by the change in

international prices. Since under WTO

obligations, temporary imports and price

shocks can’t be checked, there is need to

develop mechanism to regulate the unwanted

imports and exports. While domestic

producers should be subjected to compete

with stable level of international prices to

improve efficiency, they need to be protected

against volatility.

Keywords: WTO, India, Price Trend,

Volatility, Agricultural Commodity

I Introduction

International trade is largely regulated by the

prices and availability of the required stock at

this price. Countries having wide exposure to

international trade or the countries having

large exports/imports remain much

concerned about any upward or downward

movement in the international prices. When it

comes to agricultural commodities, price

variations are little higher than any other

sector for the reason that it can’t guarantee

the uniformity in quality of products in every

season, quantity of production can’t exactly

be predicted. Quality and quantity of

agricultural products depends on weather

conditions, seeds, fertilizers used, rainfall,

any disease in plants and finally the

harvesting methods. Thus prices of the

agricultural commodities move up and down

more swiftly than prices of production of any

other sector. Keeping this in mind, every

country has to make its own trade policies

and domestic production policy so that it can

effectively respond to the fluctuations in the

international prices. No one can exactly

predict the movement of prices, but yes price

trend of last many decades provides some

clues on cyclic variations of the prices of

some agricultural commodities.

Agricultural trade policy has two dimensions

i.e. the producer welfare and the consumer

welfare. Producer welfare is enhanced when

the exported commodity fetches a higher

price in international markets. The consumer

welfare is diminished in this case by a rise in

domestic prices due to decreased availability

in domestic markets. The net social welfare

may be positive or negative depending upon

which of these effects is larger. Reverse is the

case for importable (commodities with lower

international prices). The issues in question

are food security (for exportable particularly

basic food stuffs) and livelihood security (for

Page 2 of 16

Journal for Studies in Management and Planning

Available at http://edupediapublications.org/journals/index.php/JSMaP/

ISSN: 2395-0463

Volume 03 Issue 08

July 2017

Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 369

importable). Exports (imports) can be a good

policy in cases where the producer

(consumer) welfare is consistently higher

than the consumer (producer) welfare and the

losers can be compensated by the gainers

directly or through some other institutional

mechanism.

II Objective of the Study

The present study is mainly focused on the

price trends and volatility in agricultural

commodities. In this way, the objective of the

study is to examine the price trends and

volatility in agriculture.

III Methodology

In the present study, secondary data is used

for analysis and collected from various

sources i.e. International Financial Statistics,

Yearbook, IMF etc. For analysis, the study

period has been taken from 1950 to 2015 for

wheat, rice, sugar and cotton. The study

period for tea, cashew and black pepper has

been taken from 1975 to 2015. Graphs have

been used to analyze the data.

IV Price Trends and Volatility of

Selected Agricultural Commodities

India, being an economy which is still, by

large, dependent on agriculture, must

categories the agricultural commodities in

such groups which are easy to identify for

exports/imports and then form policies to

remain export competitive in comparison to

the international prices and on the other hand,

be ready with the purchasing policies to be an

effective and cautious buyer. Behavior of

international prices in terms of their level,

trend and fluctuations is the most important

factors in determining competitiveness,

exports, imports and choice of tariffs, by any

trading country.

Information about past trends is also useful to

draw inferences for future prices and to

formulate long term strategy on trade. The

international view about the agricultural

prices was based mainly on the assumption

that demand for food grows at a faster rate

than the growth of supply, and that this

would result in rising trend in prices of food

and similar agricultural commodities.

However, this view has been refuted by the

dynamics of demand and supply as real

prices of food have followed downward

trends notwithstanding occasional price hikes

during the last 50 years. The decline is

attributed to improvement in supply that has

resulted from application of biological and

chemical sciences to agriculture which

enabled sharp increase in grain yields first in

developed countries and with some leg in the

developing countries. It is felt that world

food situation would continue to improve

over the next two to three decades and grains

prices in real terms would continue to

decline. For developing countries where

agriculture and grains dominate the economy,

the implications are serious underscoring the

need for continued technological degradation.

Another aspect of behavior of international

prices relevant to trade policy is their

volatility.

Price volatility is mainly attributed to the

currency exchange ratio especially in case of

developing countries and third world

countries where this currency exchange

brings in considerable difference in the total

amounts received for the exports and total

outgoing amount for imports. Slight

movement in the prices may result in marring

of export orders and expensive imports. Both

the situations are alarming for the exporting/

importing nations. In the table given below,

data pertaining to international prices at

particular market or at particular port has

Page 3 of 16

Journal for Studies in Management and Planning

Available at http://edupediapublications.org/journals/index.php/JSMaP/

ISSN: 2395-0463

Volume 03 Issue 08

July 2017

Available online: http://edupediapublications.org/journals/index.php/JSMaP/ P a g e | 370

been obtained from 1950 to 2015. Wherever

data was not available, an (-) dash mark

represents the blank which indicates the

absence of authentic data. All the figures

have been rounded off to near complete digit

for easy calculations and representations

through charts:

Table 1

Nominal International Prices of Selected Agricultural Commodities (1950-2015)

US $/ Tonne

YEAR Wheat (US HRW)

FOB Gulf

Rice Thai (5% Broken)

FOB Bangkok Sugar Caribbean Port

Cotton Liverpool

Index

1950 62 137 - -

1951 67 144 125 -

1952 72 156 92 -

1953 76 175 75 -

1954 71 158 72 -

1955 69 142 71 -

1956 65 137 77 -

1957 68 137 114 704

1958 62 142 77 665

1959 60 132 65 596

1960 60 125 69 620

1961 61 137 60 643

1962 67 153 62 626

1963 67 143 183 644

1964 70 138 126 650

1965 62 136 45 635

1966 66 163 40 622

1967 68 206 42 676

1968 65 202 42 678

1969 61 187 71 613

1970 57 144 81 637

1971 64 129 99 746

1972 72 147 160 799

1973 145 350 209 1368

1974 187 542 655 1435

1975 155 363 447 1169

1976 138 255 255 1707

1977 107 272 178 1569

1978 133 368 173 1581

1979 166 334 213 1699

1980 179 434 630 2065

1981 182 483 372 1850

1982 162 293 185 1597