TN/AG/GEN/45  
 
29 May 2017  
(17-2873) Page: 1/4 
Committee on Agriculture  
Special Session  Original: English  
 
THE SHORT -TERM PRICE VOLATILITY IN AGRICU LTUR E 
NEED FOR STABILITY F OR SMALL -SCALE FARMERS IN DEV ELOPING COUNTR Y MEMBERS  
SUBMISSION BY THE G -33 
The following submission , dated 24 May 2017, is being circulated at the request of the Delegation 
of Indonesia on  behalf of the G -33. 
 
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1.1.  In 2011, the Agriculture Ministers of the world 's 20 biggest economies (G20) noted that "[t]o 
feed a world population expected to reach more than 9 billion in 2050, it is estimated that 
agricultural production will h ave to increase by 70 % over the same period, and more specifically 
by almost 100 % in developing countries ". They also recognized the fact that "[s]mall-scale 
agricultural producers represent the majority of the food insecure in developing countries and the  
bulk of production in many countries: increasing their produ ction and income would directly 
improve access to food among the most vulnerable and i mprove supply for local and domestic 
markets. "1 
1.2.  While s mall-scale farmers, with equal to or less than 2 hecta res of landholdings , provide up 
to 80 % of food su pply in some developing regions and represent 85% of the world population 
active in agriculture2, three out of four of the world 's extreme poor live in rural areas.3 Sustaining 
the small -scale agriculture is , thus, critical for maintaining food sec urity in developing countr y 
members , as it is the source of income for the overwhelming m ajority of the poor on the one hand, 
and the main source of food supply , on the other.  
1.3.  As rural households in developing count ries are both producers and purchasers of agricu ltural 
products, the impacts of price volatility for them are complex.  The s mall-scale and r esource -poor 
farmers face serious problems in case of both price collapses and dramatic price surges.  
1.4.  While smooth a nd predictable  price changes in line with  long and well -established  trends 
reflecting market fundamentals are not problematic, large and unanticipated  price vari ations 
create uncertainty for agriculture producers and lead to sub -optimal decisions, in terms  of both 
production and investment . Especially sudden and unexpected  price falls pose significant problems 
for farmers who face the risk of losing  the return  on their inves tments and even lead to a dramatic 
loss of purchasing power for the small -scale and livelihood farmers when they have already 
planted their crop s with a certain price expectation. The small -scale and livelihood farmers in 
developing economies, who are not able to ope rate on large scale and with financial independence 
for carrying over inc ome from one year to the other, find themselves in financial incapacity for 
affording the inputs for planting again and staying in the production. Thus, the excessive  price 
volatility puts in danger the subsistence of the livelihood farmers and the viabili ty of production in 
developing countries, where the production is largely dominated by the small -scale subsistence 
farming.  Therefore, maintaining the agricultural price stability is crucial for sustainable agriculture 
produ ction, rural development and pov erty alleviation in developing country members.  
                                                
1 Ministerial Declaration, Action Plan on Food Price Volatility and Agriculture , Meeting of G20 Agriculture 
Ministers, Paris, 22 -23 June 2011, p. 3. 
2 FAO, The State of Food and Agriculture 2014: Innovation in family farming , Rome, 2014 . 
3 FAO, The State of Food and Agriculture 2016: Climate Change, Agriculture and Food Security , 
Rome,  2016. TN/AG/GEN/45  
 
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  Chart  1: Average Si ze of Agriculture Holdings (ha)  
349.07
186.95
87.09
32.53 27.27
2.92 2.2 1.12
050100150200250300350
Note:  
a) Burkina Faso, Congo (Democratic  Republic), Djibouti, Egypt, Ethiopia, Guinea, Guinea -Bissau, 
Lesotho, Libya, Malawi, Namibia, Reunion  Island , Uganda;  
b) India, Indonesia, Iran, Myanmar, Nepal, Pakistan, Philippines, Thailand, Viet N am; 
c) Argentina, Brazil, Colombia, Honduras, Panama, Paraguay, Peru, Puerto  Rico; 
d) Austria, Belgium, Denmark, Finla nd, France, Germany, Greece, Ireland, Italy, Luxembourg, 
Netherlands, Portugal, Spain, United  Kingdom . 
Source:  Diaz-Bonilla E, Macroeconomics, Agriculture & Food Security: A Guide to Policy Analysis in 
Developing Countries, IFPRI , 2015 . 
 
1.5.  Short -term volatil ity of the prices of basic agricultur al commodities still continues to rule in 
the agriculture markets which are intrinsically subject to greater volatility than other se gments of 
the economy due to the effects of natural shocks, i.e. weather and pest/dise ase conditions, low 
demand and supply elasticity in the short term, the inability of adjusting supply to price variations 
as production tak es considerable time and depend s on seasons. The volatility of international 
prices rose 52 % for maize, 87 % for rice,  and 102 % for wheat in the aftermath of  the 2008 global 
financial crisis, compared to the three decades bef ore.4 The 201 4 World Trade Report of the 
WTO points out that "price volatility is, and is likely to continue to be, a concern for importing and 
expor ting countries. "5 
1.6.  Due to the fact that supply cannot respond to the price changes in the short term, a  
phenomenon particular to the agriculture markets is the lagged supply response to the price 
changes which provokes cyclical adjustments but, in general, creates over -reaction and a dditional 
price volatility. This happens especially when producers plant crops that bring high returns in the 
season t, which leads to a col lapse of the prices due to over supply in the se ason t+1, as often 
named 'hog-cycle'.6 
                                                
4 Minot N. "Food Price Volatility in Sub -Saharan Africa: Has It Really Increased? ", Food 
Policy ,2014,  45 : 45-56. 
5 World Trade Organization (WTO), World Trade Report 2014: Trade and Development: Recent Trends 
and the Role of the WTO , Geneva, 2014, p.  132. 
6 H. F. Breimyer, "Emerging Phenomenon: A Cycle in Hogs ", Journal of Farm Economics , Vol 41, 
November 1959 and Dennis L. Meadows, Dynamics of Commodity Production Cycles , Wright -Allen Press, 1970 . TN/AG/GEN/45  
 
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  Chart 2 Nominal Prices of Selective Agriculture Commodities ( monthly, USD, left axis for 
wheat and m aize, right a xis for rice and soybeans)  
 
Source:  UNCTADSTAT . 
 
1.7.  The price volatility is particularly importa nt for developing countr y members  when imports 
have a  large share in the domestic consumption of the product in question, where the vol atility is 
transmitted from international to domestic markets through imports.  A recent study shows that 
the price volati lity in international markets  is more likely to be transmitted into the domestic 
markets when the ratio of traded volume to domestic production is greater than 40 %.7 However, 
there is  a number of exceptions  to this pattern. S ome members  even with little tr ade volume  in a 
commodity are affected by  domestic price volatility  that is parallel to international volatility, mainly 
due to the fact that local traders act according to international markets and prices because of the 
possibility of arbitrage between do mestic and international markets.8 
                                                
7 Ceballos F, Hernandez M, Minot N, Robles M, IFPRI Discussion Paper 01472, Grain Price and Volatility 
Transmission from International to Domestic Markets in Developing Countries , October 2015 . 
8 Ibid. TN/AG/GEN/45  
 
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  Chart  3: Changes in the World Average Import Prices of Selective Agriculture 
Commodities (yearly  per ton ne, %) 
-40%-20%0%20%40%60%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Barley Wheat Soybean Rice Maize Cotton
Source:  Calculation made on the data from ITC TradeMap . 
 
1.8.  As the great  majority of producers in developing countr y members  are small -scale farmers, 
they are highly dependent on the seasonal income that they would earn from their harvest . 
Therefore,  they have little market power to influence prices and are mainly  price takers in the 
short term, which makes them highly vulnerable to price changes.  
1.9.  It is vital for developing country members to protect the resource -poor and small -scale 
farmers from excessive price volatilities of agriculture commodities to ensure a p redictable income 
for rural populations and alleviate rural poverty, together with achieving long -term objectives of 
food security. Limiting the impact of international price collapses on domestic prices should be one 
element of this strategy.  
1.10.   Some develop ed members apply "farm income safety net systems ", including "price loss 
coverage mechanisms " to protect their farmers from the adverse effects of price changes and to 
maintain a predictable income level for rural populations. These kind of tools are not g enerally 
accessible to developing countries due to financial, technical and social develo pment constrains.  
1.11.   In their report on the "Price Volatility and Food Security ", the High Level Experts on Food 
Security and Nutrition of FAO noted the necessity for ado pting "[s]afeguard measures that 
effectively protect against import surges; " and "[f]lexibility to raise tariffs according to pre -defined 
conditions, possibly including price bands for vital crops " under the WTO rules, for the protection 
of small -scale far mers from negative effects of price volatilities.9 
1.12.   Against this background, the implementation of an effective and operational Special 
Safeguard Mechanism (SSM) has become an urgent need for developing country members, to be 
able to effectively address the  negative impacts of short -term international price volatil ities on the 
resource -poor small -scale farmers.  
 
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9 FAO HLPE, Price volatility and food security. A report by the High Level Panel of Experts on 
FoodSecurity and Nutrition of the Committee on World Food Security , Rome, 2011 .