REPORT: The State of Agricultural Commodity Markets

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This edition of The State of Agricultural Commodity Markets (FAO, SOCO 2020, 164 pages) focuses on how markets can bring us closer to achieving the 2030 Agenda for Sustainable Development. SOCO 2020 offers a detailed analysis of the major global trends in agri-food markets and trade to identify how to reap economic, environmental and social gains and spur overall development.

The report makes an important contribution to the debate on how well-functioning markets can contribute to inclusive economic growth and sustainable development. SOCO 2020 discusses policies, innovative mechanisms and digital innovations that can promote the participation of developing countries and smallholder farmers in global value chains. The report also looks at policy responses to address the impacts of the COVID-19 pandemic on food value chains, both nationally and globally.

The report covers four areas: trends in agricultural and food markets; global value chains in food and agriculture; farmers and value chains - business models more sustainable growth; digital technologies and agricultural and food markets.

The rise of global agri-food value chains

• The report estimates that about one-third of global agricultural and food exports are traded within a global value chain and cross borders at least twice.
• The rise of global value chains is driven by income growth, lower trade barriers and technological advancements, which have transformed markets and trade processes, linking farmers to traders and consumers across regions and countries.
• Smallholder farmers, however, are often missing out on the benefits of global value chains. Furthermore, the emergence of global value chains with the stringent food quality and safety requirements could further marginalize smallholders.
• Digital technologies can help markets to function better and can improve farmers' access to them. Innovations, such as food e-commerce, can benefit both farmers and consumers. However, to guarantee that the dividends of digital innovation are shared with the poorest, the current digital divide in agriculture needs to be reduced.
• The adoption of more inclusive business models, such as contract farming and blockchains, can also help farmers to better integrate into modern and more complex value chains.

How can agricultural and food markets foster sustainable development?

• The report makes the case for the role agri-food markets can play in fostering sustainable development.
• It argues that the promotion and wider application of voluntary sustainability certification schemes and standards in agriculture, for example, can address trade‑offs between economic, environmental and social objectives.
• Sustainability certification schemes can promote fair trade, inclusion, non‑discrimination, and environmentally-friendly farm practices. They also can ensure occupational safety, ban child labour, and encourage investments.

The evolution of trade and markets - trends and drivers

• International agri-food trade has been driven by: technological progress; urbanization; population and income growths; lower transport costs; trade policies and a decline in average import tariffs.
• Upper and lower middle‐income countries together have increased their share in global agri‐food exports from about 25 percent in 2001 to 36 percent in 2018.
• Whilst global agri-food trade has doubled since 1995 in real value, its growth rate has been slower since the 2008 financial crisis. This is expected to be further impacted by the COVID-19 pandemic.
• The 2008 financial crisis and consequent economic slowdown stalled the evolution of agri-food global value chains, and the COVID-19 pandemic could further disrupt their potential in global trade and growth.
• Digital technologies are transforming all stages of the food value chain - from farm to table. They improve efficiency, create jobs and save resources. But it is difficult to foresee all the impacts technological innovation can have on how we grow, process, trade and consume food.
• While countries in Europe and Central Asia, and East Asia and the Pacific tend to trade within the same regions, countries in South Asia, Latin America and the Caribbean, sub‑Saharan Africa, North America, and the Middle East and North Africa trade more globally. About 90percent of exports in agricultural commodities from sub-Saharan Africa, and Latin America and the Caribbean are destined for other regions.
• Trade will continue to play an important role in global food security and nutrition, by moving food from surplus to deficit regions.
• Regional trade agreements can stimulate global value chain participation and spur institutional and policy reform. However, as many vulnerable countries continue to rely on global markets, the promotion of the multilateral trading system is important.
• The larger part of agri‑food trade is made up of processed food products.