Determinants of International Agricultural Market Pricesand the European Union:The Roles of Energy Prices and Biofuel Production

In this article we discuss the determinants of international agricultural market prices andpresent the results of a partial equilibrium model of international agricultural trade withinterconnected markets. The results of the model suggest that the long term trend of decliningreal agricultural commodity prices has been reversed and that the EU will become a netimporter of grains, as it was the case before the late 1970s. EU net imports of oilseeds willincrease by 135%. Significant increases in productivity would be required in order to maintainthe present level of self-sufficiency on crop markets in the EU. Moreover, we quantify theimpact of changes in the price of energy and biofuel production on world prices. A key resultin this regard is that the price of energy has become a major driving force of agriculturalworld market prices. For instance, in the period of analysis (2003/05 – 2015/17) the price ofwheat can be expected to increase by about twenty percent, provided that the price of oilremains at the 2003/05 level. With a price increase to $100 per barrel towards 2015/17 theprice of wheat will go up by about 70 percent....