Structural change in commodity markets: have agricultural markets become thinner?

A thin market is a market with few buying and selling offers, and agricultural markets are deemed to be thin and volatile. Nevertheless, this study examines whether selected agricultural markets have become thinner or not.

The author states that he could find no evidence of any general increase in price volatility for the range of commodities examined. Moreover, he suggests the following findings:

• for all of the commodities examined (other than butter and maize), markets have not become thinner, and exports as a share of production have either remained stable or increased over time
• furthermore, the number of participants in the selected markets both as suppliers and as recipients has increased while trade has become less concentrated
• still, when focusing on 2006-10 period, price variability during that time was higher than in the 1990s, but in general, not higher than that of the 1970s except for wheat and rice
  

Given these findings, the paper underlines that the assertion that prices are now more volatile because of the thinness of agricultural markets may need to be re-evaluated. In addition, it presents the following conclusions:

• faster productivity growth can help mitigate price rises for products with strong demand growth
• one of the crucial factors for alleviating large price swings from unexpected shocks is to allow trade to flow unburdened by domestic and border policies 
• government policies suddenly blocking or restricting the free flow of goods to international markets may increase uncertainty and contribute to higher and more volatile world prices 
• as a matter of fact, such actions contribute to making markets thinner