- Costs of crop production
- Fuel and fertilizer factors
- High prices stimulate acreage
Typically there are several-to-many reasons why commodity prices do what they do, especially if they have tripled from a mere few years ago. How the amalgamation of many influences leads to the formulation of crop prices is summarized in a major section of Derek Headey and Shenggen Fan’s IFPRI (International Food Policy Research Institute) monograph, Reflections on the Global Food Crisis.
The factors they identify as contributing to the final determination of an agricultural commodity’s price include stocks, costs, harvest area, weather, and yields on the supply side and domestic use, foreign imports, and economic and population growth on the demand side.
The analysis of the effect of rising oil prices on commodity prices caught our attention, as much for what may be implied as what it said. Headey and Fan write: “International fuel and food prices are closely linked historically. Rising oil prices were closely associated with the 1972–74 crisis and indeed were arguably the dominant factor, so there is clearly some precedent here.”