Volatility of Agricultural Markets

Authors:

Pages: 157-170

Abstract:

The study is aimed at uncovering the volatile nature of agricultural markets. Accordingly, analysed are the characteristics of demand using the Laws of King and Engel which explain two agrarian paradoxes – why farmers earn more at lower yields, and why richer people spend relatively less on food. It is found that the supply of agricultural products shows a significant departure from the traditional model from the so-called Normal law of supply. It responds significantly more elastically with rising prices of agricultural products, and less elastically with their decrease, and even in the latter case the prices may increase. Due to large deformations of supply and demand, the market mechanism does not function well on the agricultural market. There are many distortions in price formation, respectively, in the redistribution of resources, income, etc. The high inelasticity of demand and supply of agricultural products causes major changes in prices for relatively small changes in supply and demand, leading to increased volatility of agricultural markets. Most of the agricultural markets cannot balance themselves and it is more difficult for them to achieve market equilibrium, due to the fact that the supply in the medium and long term becomes more elastic, and demand traditionally remains inelastic. The provision of up-todate market information and adequate state policy through interventions and regulation play an important role in stabilizing the agricultural markets.

Keywords:

non-elasticity, misbalance, volatility

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