Agricultural Market Outlook and Sensitivity to Macroeconomic, Productivity, and Policy Changes

Abstract

The outlook for international agricultural commodity markets is very sensitive to changes in macroeconomic conditions, rates of productivity growth, and government policies. Baseline projections prepared by the Food and Agricultural Policy Research Institute in March 1988 assume moderate rates of economic and productivity growth, and a continuation of current policies. Under these conditions, world production, use, and trade of grains and oilseeds increase at a modest pace, while real prices change little. More rapid world economic growth and lower rates of inflation result in significantly higher real prices for wheat, feed grains, and soybeans. World trade expands as demand grows more rapidly than supply in importing countries. Increased rates of productivity growth result in lower commodity prices and a contraction of world trade as importing countries become more self-sufficient. Removing trade barriers causes significant shifts in world production and consumption of agricultural commodities, but only modest changes occur in world prices. Introduction The Food and Agricultural Policy Research Institute (FAPRI) evaluated the outlook for feed grains, wheat, and soybeans through crop year 1995/96 using the global commodity modeling system. The evaluation consists of five scenarios, each related to a baseline conducted in March 1988 and presented in the FAPRI Ten-Year International Agricultural Outlook (FAPRI Staff Report 1-88). The purpose of the exercise was to compare estimated results with those from other global models that use similar assumptions, and to gain insights that might be useful in focusing a policy agenda for the 1990s. Uncertainty over global economic conditions, development and adoption of new technology, and the GATT trade agreement frame the options being considered. This paper includes a description and an evaluation of the baseline and the five scenarios. Due to space limitations, the outcomes from the exercise are presented in aggregate terms. A brief description of the modeling system is followed by a review of the baseline and evaluation of the sensitivity of the baseline projections to the alternative policy scenarios. General conclusions are provided in the final section. Model Description The system includes detailed econometric models for U.S. crops, livestock, government costs, and net farm income. The trade