GTFS: Global Trends and Future Scenarios Index

Macroeconomic Environment and Comodity Markets: A Longer-Term Outlook


This Chapter 5 of the longer work Looking Ahead in World Food and Agriculture: Perspectives to 2050.


By most accounts, the recent commodity boom has been the longest and broadest (in terms of commodities involved) of the post-Second World War period (World Bank, 2009). Between 2003 and 2008, nominal energy and metal prices increased by 230 percent, food and precious metal prices doubled, and fertilizer prices increased fourfold. Although most prices have declined sharply since their mid- 2008 peak, they are still considerably higher than their 2003 levels.

Apart from broad and sustained economic growth, the boom has been fuelled by a host of other factors, both macro and long-term as well as sector-specific and short-term. These include low past investment in extractive commodities, reflecting a prolonged period of declining prices due to excess capacity left after the collapse of the Soviet Union and weak demand after the 1997 East Asian (and other countries’) financial crisis; a weak United States dollar (the currency of choice in most international commodity transactions); fiscal expansion and loose monetary policies in many countries; and investment fund activity by financial institutions, which chose to include commodities in their portfolios. In addition,
the diversion of some food commodities to the production of biofuels (notably maize in the United States of America, and edible oils in Europe), adverse weather conditions (e.g., three droughts in Australia between 2001 and 2007, a heat-wave in central Asia during the summer of 2010), global stock declines of several agricultural commodities to historical lows, and government policies (e.g., export bans and prohibitive taxes) further contributed to the boom. Geo-political concerns played a key role as well, especially in energy markets.