1.11 Real agricultural commodity prices since 1900

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FIGURE 1.11 Real agricultural commodity prices since 1900

Most agricultural commodity prices have followed a long-term downward path in real terms. Prices have also been volatile, especially during the first three decades of the 1900s. Volatility patterns differ among commodities, with the exception of grains (in part due to land substitutability). The price spike during the oil crises of the 1970s was similar to that of other commodities.

A. Maize, wheat, and rice B. Sugar and palm oil

C. Cocoa, coffee, and tea D. Cotton and natural rubber

Source: World Bank. Note: Prices deflated by Consumer Price Index, kg = kilogram; mt = metric ton; RHS = right-hand side.

Technological change

Improvements in technology during the 1900s and early 2000s have boosted the production and trade of agricultural commodities, essentially satisfying the basic caloric needs of the growing world population. Technology has fundamentally altered how agricultural commodities are produced, transported, stored, and consumed. Information and communication technology has encouraged the ongoing development of markets and the creation of sophisticated hedging facilities (box 1.3).

Production. The first major productivity improvement in agriculture was the development of hybrid maize in the United States, often called the biggest agricultural miracle of the twentieth century (Crow 1998). Hybrid seeds, formed by crossing four interbred lines, became commercially available during the 1920s and were widely adopted in the major maize growing areas of the United States by 1940. For example, in the U.S. state of Iowa, a key maize producing state, hybrid seeds accounted for nearly 97 percent of the area allocated to maize by 1941, with yields reaching 3.20 mt/ha, up from 1.95 mt/ha a decade earlier. Mechanization, improved production practices, fertilizer,

78 CHAPTER 1 COMMODITY MARKETS

and chemical use, and continued improvements in the genetic material resulted in further productivity gains. In 2016-21, maize yields in the United States exceeded 10 mt/ha, an eightfold increase since the introduction of hybrid varieties (figure 1.12). Similar productivity improvements have occurred for most other agricultural commodities on a continuous basis.

Productivity improvements in grains attained in AEs during the 1940s and 1950s were replicated in EMDEs during the Green Revolution. The high-yielding varieties of rice and wheat now used in EMDEs were developed at the International Maize and Wheat Center in Mexico and the International Rice Research Institute in the Philippines, and adapted to EMDE agroecological and climatic conditions.18 The outcome included improved hybrid seeds, increased effectiveness of fertilizers and chemicals, and expanded irrigation and mechanization. The wheat yield increases achieved by the United States in the 1940s were achieved in India by the mid-1960s. Similarly, rice yields in China, India, and Vietnam quadrupled between 1960 and 2020, while wheat yields in Argentina doubled.

The location of production shifted as these changes occurred. Brazil became a major soybean producer and exporter during the second half of the 1900s, accounting for more than one-third of global production in 2020, from near zero in 1950 (figure 1.13). Indonesia and Malaysia became leaders in palm oil production. Vietnam now accounts for nearly one-fifth of global coffee supply, from zero in 1980. Cotton production shifted from the United States to China and India (figure 1.14).

A further increase in productivity began in the mid-1990s with the introduction of genetically modified crops in the United States.19 Such crops can reduce costs because they reduce chemical applications. Biotechnology had a much larger positive impact on yields in EMDEs than in AEs because chemical applications in EMDEs were already relatively low, and thus suboptimal for conventional seed varieties (Baffes 2012; Qaim and Zilberman 2003). Not all countries, however, have adopted biotechnology. Among advanced economies, Australia, Canada, and the United States have used biotechnology extensively, whereas the European Union has left it up to the member states to decide. Among EMDEs, Argentina, Brazil, Paraguay, and South Africa are adopters.

Transportation and marketing. In the first half of the 1900s, the combined effects of mature railroad networks, oil-fueled ships, and the motor vehicle reduced transportation costs, increased trade, and brought greater integration in commodity markets. The pace of change accelerated after 1945. Investments in the shipping industry enabled the

18 Both the center and the institute are members of the Consultative Group for International Agricultural Research, an umbrella organization that unites 14 international agricultural research institutes and provides evidence, innovation, and new tools to "harness the economic, environmental, and nutritional power of agriculture" (from the organization's "How We Work" page at https://www.cgiar.org/how-we-work/).

19 A genetically modified crop is "a plant used for agricultural purposes into which one or several genes coding for desirable traits have been inserted through the process of genetic engineering. These genes may stem not only from the same or other plant species, but also from organisms totally unrelated to the recipient crop" (Qaim 2009, 665).