The State of Agricultural Commodity Markets 2024

Within a country, imports can increase food availability and can lower domestic food prices. This can result in gains for consumers for whom access to more diverse foods is improved, but could also result in reduced farm incomes for resource-poor farmers who cannot compete globally (see Part 2).

As with income, food price changes consist of an important pathway through which trade affects nutrition. Trade openness can affect the relative prices of different foods, which, in turn, shape food consumption and dietary patterns, depending on how consumers respond to these price changes. Consumer responsiveness to changes in relative prices is influenced by a multitude of factors and it is not easy to predict (see Box 3.4). For example, as incomes increase and people become more affluent, their responsiveness to food price changes declines. This is due to the decline in the share of food in total consumer expenditure but also due to shifts in preferences (see Part 1).^{138, 139}

In a country, food prices are also determined by the cost of production, which, in turn, is influenced by a variety of inputs, as for example, land, labour, fertilizers, pesticides and animal feed. Technology, which determines how inputs are combined in the production process, as well as temperature and rainfall, also affect the cost of production. Countries engage in trade to export what they can produce at a lower cost relative to other countries, while importing what is more expensive to be produced domestically. This exchange mechanism results in significant gains and promotes food security globally (see Part 2).

For example, consumers in countries with low land endowments relative to their population, who would otherwise face high food prices, can have access through trade to lower-priced food.¹⁴⁰ In this way, trade can help narrow the differences between prices of similar foods across countries. Indeed, in theory, the law of one price states that trade, in the absence of frictions such as transport costs and distortions such as domestic support, trade policies and regulations, would result in the prices of similar food products across countries becoming equal.^{u, 141}

Examining average import price levels per calorie for different food categories that are traded across the world can, in general, help understand how nutritional outcomes could be affected by relative food prices. For example, on average, prices are highest for vegetables, followed by fruits,^v irrespective of country income level (Figure 3.10; see Box 2.1 for data definitions and Box 3.2 for information on data conversions and limitations).

FIGURE 3.10Import prices of food categories across countries, 2021

NOTES: Prices are based on food imports and include all costs related to transportation but without tariffs. Each circle denotes the average price for the respective food category in a country. For each category, the box denotes the part of the distribution where prices are lower. The vertical line on the right side of the box denotes the average across countries.

SOURCE: Authors’ own elaboration based on FAO. 2024. FAOSTAT: Trade – Crops and livestock products. [Cited 15 May 2023]. https://www.fao.org/faostat/en/#data/TCL. Licence: CC-BY-4.0.

https://doi.org/10.4060/cd2144en-Fig3.10

FIGURE 3.11Prices of traded foods by processing level, 2021

NOTES: Prices are based on food imports and include all costs related to transportation but without tariffs. Each circle denotes the average price for the respective food category in a country. For each category, the box denotes the part of the distribution where prices are lower. The vertical line on the right side of the box denotes the average across countries.

SOURCE: Authors’ own elaboration based on FAO. 2024. FAOSTAT: Trade – Crops and livestock products. [Cited 15 May 2023]. https://www.fao.org/faostat/en/#data/TCL. Licence: CC-BY-4.0.

https://doi.org/10.4060/cd2144en-Fig3.11

Animal source foods are the third most expensive category of traded foods, followed by sweets and beverages. Staple foods, fats and oils, and pulses, seeds and nuts are, on average, much cheaper than all other food categories.^w These foods are energy-dense, can be produced and transported in bulk, and can be stored easily for extended periods of time, making them relatively cheaper. Fruits and vegetables are rich in nutrients, fibre and water but less energy-dense, which makes them relatively costly when measured on a per calorie basis. In fact, the value of foods such as fruits and vegetables is less in their caloric content than in their nutrient content, and nutrient-density appears to be an important determinant of food prices (see Box 3.5).

BOX 3.5Pricing nutrients

Trade prices can also be expressed for nutrients. An analysis conducted for this report estimated average trade prices of macronutrients and micronutrients based on a new dataset that reports the nutrient content of every food item traded. Consumers may not explicitly assess nutrient prices when they purchase food, and their preferences between nutrient content such as Vitamin A or iron are not well-defined.¹⁷⁰ Nevertheless, governments have to consider the adequacy of nutrients in the food available for consumption by their citizens, and they must also assess the relative underlying values to guide policy choices and regulation on how to ensure availability and diversity in foods and nutrients.

Estimating the implicit trade prices of nutrients across countries with different levels of income reveals how global markets could help address the trade-offs between economic and nutrition objectives. Some studies underline the negative effect of exports from low- and middle-income countries on the availability of diverse foods in their domestic markets, which could result in hindering improvements on nutritional outcomes.* Nevertheless, implicit trade prices for nutrients suggest that low- and middle-income countries appear to benefit from international trade by exchanging high-priced for low-priced macronutrients (Figure 3.12). Low- and middle-income countries as a group export carbohydrates and fats at a higher price to high-income countries than they import, thus engaging in “nutritional arbitrage”, similar to the trade in aquatic products (see Box 2.3).**^{, 171}

FIGURE 3.12Prices of macronutrients by trade between country income groups, 2000–2021

NOTES: Macronutrient prices are estimated based on food exports and do not include costs related to transportation. The shaded areas denote confidence intervals of the estimates.

SOURCE: Adapted from Traverso, S. (forthcoming). Food trade, macronutrient prices, trade tariffs and the price of food imports – Background paper for The State of Agricultural Commodity Markets 2024. Rome, FAO.

https://doi.org/10.4060/cd2144en-Fig3.12

Along with macronutrients, the analysis carried out for this report also estimated the implicit trade prices of micronutrients (minerals and vitamins) embedded in food trade flows. Overall, the results suggest that the content of micronutrients significantly contributes to the price of foods, indicating the higher the micronutrient content in a food item, the higher its trade price.

More specifically, international consumers appear to be willing to pay a premium for foods rich in minerals and in vitamins A and C. Conversely, the content of B-group vitamins in foods exchanged on international markets is not significantly correlated with the price of foods.

However, there is a close relationship between the combined content of many of the macronutrients and micronutrients in a food and its price. For example, foods rich in one mineral usually include relevant amounts of many other minerals. Often, foods rich in one vitamin of the B-group also include relevant amounts of other B-group vitamins. Foods rich in protein also include high amounts of minerals and certain vitamins of the B-group. This makes it difficult to identify how the content of specific micronutrients in foods affects their prices. However, it strongly suggests that premiums are paid for foods that are rich in micronutrients in general.¹⁷²

NOTES: * See for example, Gacitua, E.A. & Bello, R. 1991. Agricultural Exports, Food Production, and Food Security in Latin America. Rural Sociology, 56(3): 391–405. https://doi.org/10.1111/j.1549-0831.1991.tb00440.x. ** Exporting a higher share of high-quality foods is consistent with the Alchian-Allen effect that postulates that international transportation costs lead firms to ship high quality goods abroad while holding lower quality goods for domestic consumption. This effect is also known as “shipping the good apples out”. See Alchian, A.A. & Allen, W.R. 1964. University Economics. Belmont, Wadsworth Publishing Company; Hummels, D. & Skiba, A. 2004. Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture. Journal of Political Economy, 112(6): 1384–1402. https://doi.org/10.1086/422562; Miljkovic, D. & Gómez, M.I. 2019. Shipping the good coffee out: the Alchian–Allen theorem and relative demand for Brazilian Arabica and Robusta coffees. European Review of Agricultural Economics, 46(4): 697–712.  https://doi.org/10.1093/erae/jby051

Analysing average import prices per calorie according to food processing level shows that processed foods, followed by ultra-processed foods, are the most expensive foods across all country income levels. Unprocessed and minimally processed foods and processed culinary ingredients are relatively cheaper (Figure 3.11).^x

Processed foods include many energy-dense high-value foods and beverages such as cheeses, cured meats, beer and wine (see Box 2.2). Processing requires additional resources, adding value to primary food products and is reflected in relatively higher prices, as compared to unprocessed and minimally processed foods. Ultra-processed foods are usually energy-dense and undergo an elaborate production process, which makes them relatively expensive. Processed culinary ingredients are often used as inputs in the food industry and, on average, are relatively less expensive.

Income effects on prices of non-intensively traded foods

In general, high-income countries appear to import more expensive foods while import prices of low- and middle-income countries are, on average, lower in all food categories and processing levels (Figure 3.10 and Figure 3.11, respectively). Higher prices can reflect quality differences in the foods traded, different food baskets, differences in transportation costs and more stringent product standards. However, depending on trade intensity, prices across countries also diverge systematically due to differences in income. For example, high productivity levels in countries that trade intensively raise the general wage level, which in turn increases incomes. Higher purchasing power results in all goods, especially those that are not traded intensely, being more expensive in these high-productive countries as compared to those in lower-income countries.^y Food prices are not an exception, and across countries prices of foods that are not traded intensively in global markets such as fruits and vegetables tend to differ systematically with income levels (Figure 3.10).

Although in a country, trade openness in general lowers food prices, higher income levels can exert an upward pressure on foods that are not traded intensively. These forces work simultaneously as general trade openness results in higher incomes. To disentangle these effects from each other, economists adjust for purchasing power to reveal the undiluted trade effect when comparing high- and low-income countries (see next section).¹⁴²

Trade barriers and food prices

Lower trade barriers such as import tariffs and non-tariff barriers, which include standards and regulations, are associated with higher volumes of food trade. Trade liberalization including import tariff reductions would, in general, intensify competition and lower the food price level within the country leveraging the tariff, thus improving access to food. However, for different foods the magnitude and direction of the impact depends on a number of factors including the net-trade position of the country lifting the trade barrier and its importance in the global food market.¹⁴³

Evidence from China’s trade liberalization in the early 2000s suggests that tariff reductions and lowering non-tariff barriers to trade were associated with an increase in prices for vegetables but also a significant decline in the price of meat. These changes in relative prices were in line with trade patterns, as at that time China was an exporter of vegetables but a major importer of meat and fats.¹⁴⁴ The final impact on nutritional outcomes would depend on how trade liberalization affects prices at the retail level and how consumers would respond to these changes and adjust their consumption.

Indeed, the retail price paid by consumers is influenced by a myriad of domestic factors other than import tariffs such as the efficiency of domestic value chains, national regulations, institutional quality, and the market structure that determines the nature of competition among producers, traders, food processors and retailers. Recent studies suggest that, on average, import tariffs may have a relatively modest effect on the relative prices of different foods and that import tariffs may contribute minimally to food prices at the retail level.^{145, 146}

Analysis carried out for this report shows that, at the global level, lower import tariffs are generally associated with lower food retail prices measured on a per calorie basis and adjusted for purchasing power (Figure 3.13).¹⁴⁷ Visualizing the price distributions of 547 food items across 170 countries, derived from the World Bank’s International Comparison Programme, shows that foods tend to be more expensive in countries with a high level of tariffs on primary agricultural products than in countries with relatively lower tariffs.^{z, aa}

FIGURE 3.13Distribution of food prices according to average tariff level, 2017

NOTES: Import tariffs are expressed as the weighted average applied tariff rate on primary agricultural products collected from the World Bank’s World Development Indicators (https://databank.worldbank.org/source/world-development-indicators). Retail food prices are provided by the World Bank’s International Comparison Program (2017 cycle, https://www.worldbank.org/en/programs/icp). These have been converted into prices per calorie, adjusted using purchasing power parities (PPP), and transformed into logarithms. The right-hand bell shows that food prices are higher in countries with high tariffs. The left-hand bell shows that food prices are lower in countries with low tariffs.

SOURCE: Adapted from Schiavo, S. (forthcoming). The impact of trade openness on the cost and affordability of a healthy diet – Background paper for The State of Agricultural Commodity Markets 2024. Rome, FAO.

Trade openness as reflected by lower import tariffs can result, on average, in a lower food price level and improve access for food. However, this average impact can mask different effects on different foods and across net exporting or net importing countries. Due to the various and, partly, counteracting factors and channels affecting the relationship between trade openness and food prices, any ad hoc predictions on price effects of trade policy changes on specific foods are difficult to make and would require a dedicated framework for scenario analysis.

Trade and the cost of healthy diet food baskets

While the average impact of trade barriers on food prices is evident, there are concerns that trade openness may disproportionately lower prices for foods that are less conducive to healthy diets, leading to the displacement of higher-quality local foods with negative implications for nutrition.^{148, 149, 150} An analysis carried out for this report, classifying foods in line with the cost and affordability of a healthy diet (CoAHD) indicator,¹⁵¹ assessed whether lower prices observed in countries that apply lower import tariffs are driven by low price levels of foods of high energy density and minimal nutritional value.¹⁵²

Since 2020, FAO has been publishing the CoAHD to reflect the population’s physical and economic access to the least expensive foods that meet the requirements for a healthy diet, as defined in food-based dietary guidelines (see Box 3.3). For each country, based on 422 foods that are part of a “healthy diet basket”, the CoAHD indicator is composed of 11 least-cost food items from six food categories including starchy staples, animal source foods, legumes, nuts and seeds, vegetables, fruits, oils and fats.¹⁵³

Differentiating foods between those included in healthy diet baskets and those that are not, the analysis points out that, along almost the entire price distribution, higher import tariffs are associated with higher prices irrespective of whether or not foods are included in the healthy diet basket (Figure 3.14). This suggests that trade liberalization and trade openness do not have a disproportionate effect on foods of high energy density and minimal nutritional value, on average, for all food items considered and across all countries.

FIGURE 3.14Distribution of prices of foods according to their inclusion in healthy diet baskets, by average tariff level, 2017

NOTES: Import tariffs are expressed as the weighted average applied tariff rate on primary agricultural products collected from the World Bank’s World Development Indicators (https://databank.worldbank.org/source/world-development-indicators). Retail food prices are provided by the World Bank’s International Comparison Program (2017 cycle, https://www.worldbank.org/en/programs/icp). These have been converted into prices per calorie, adjusted using purchasing power parities (PPP) and transformed into logarithms. Foods within the healthy diet baskets tend to be more expensive than those outside as, in general, they contain fewer calories per kg. Prices tend to be higher in countries with high tariffs and lower in countries with low tariffs regardless of whether foods pertain to the healthy diets basket.

SOURCE: Adapted from Schiavo, S. (forthcoming). The impact of trade openness on the cost and affordability of a healthy diet – Background paper for The State of Agricultural Commodity Markets 2024. Rome, FAO.

The effects of the average tariff level on specific individual foods can vary widely. For example, around 50 percent of the cheapest foods included in the healthy diet basket (the ones used for the estimation of the CoAHD) are domestically sourced and possibly not intensively traded, further constraining the potential of trade liberalization to significantly influence prices.¹⁵⁴ At the same time, foods that are traded can, depending on many factors, be responsive to changes in trade barriers (see Part 4 on the impact of trade agreements on the import demand for different foods).