Food Security Analysis and Management in an Era of Cellulosic Biofuels
This project addresses the economics of price volatility and commodity market behavior as they relate to the controversial issues of biofuels policies and food security. The team will estimate market behavior of a synthetic commodity, the global supply of calories from major grains, to account for interactions between the major grains in consumption and production. It willl also estimate trends due to productivity growth and technical change, along with estimation of storage behavior, in markets for major grains. This will integrate, for the first time, productivity-related innovations with the short-run behavior of these markets.
We made progress on several dimensions identified in our project proposal. We modeled for the first time a market for a storable commodity with both yield trends and price variation simultaneously, in a statistically satisfactory fashion. We constructed a synthetic commodity, grain calories from the three major food grains, to recognize inter-grain substitutability. We developed a maximum likelihood market estimator for grains and sugar, including trends in production and prices. Using these, we assessed the value of global stocks data as indicators of market vulnerability, estimated the capital cost for global grain storage, and explored options and flexible mandates for protecting food markets from disruption due to grain-based biofuels or animal feeding demands.
The recurrence of spikes in prices of grains in 2012 led to demands that helped us to progress on several dimensions. First, we estimated, using Maximum Likelihood, a model of the market for a synthetic commodity, grain calories from the three major food grains, using current calorie weights for quantities, and a price constructed as a weighted average of the global price of each grain. This aggregate performs well, confirming the high substitutability of the calories from each of the grains at the margin.
Second, with the support of the AMIS initiative of the G-20, we estimated the empirical model with trend using only price data, and a constructed price index of aggregate calories. We then reconstructed the implied variation in stocks, added estimates for essential stocks, and calibrated for range of variation. The results were remarkably consistent (given the noise in the data) with observed aggregate grain stocks, confirming high inter-grain substitution.
We further investigated whether stocks data added extra information not in price data useful in detecting times of vulnerability to spikes in prices. Our results support the AMIS objective; stocks data do appear to help predict the largest spikes, even if the market price data are available.
Published in 2013
Bubble Troubles? Rational Storage, Mean Reversion and Runs in Commodity Prices, Book Chapter, Eugenio S.A. Bobenrieth, Juan R. A. Bobenrieth, Brian D. Wright, The Economics of Food Price Volatility, 2013.
Stocks-to-Use Ratios and Prices as Indicators of Vulnerability to Spikes in Global Cereal Markets, E. Bobenrieth, B. Wright, D. Zeng, Agricultural Economics, doi: 10.1111/Agec.12049.