< Back to Insights

Calming Food Market Volatility with Information from Satellites on Production

February 5, 2021

Molly Brown, PhD

Chief Science Officer

By Go2anna - Own work, Public Domain

Global commodity markets have increasingly become a place for investors to put their money as a hedge against inflation and stock market volatility. Because many traded commodities such as wheat and maize are also food, large price fluctuations in commodities markets may eventually result in changes in farm gate prices in rural communities as well as the price of food (see Brown and Kshirsagar 2015). Rapidly increasing food prices can cause unrest and widespread protests, and ultimately a loss of legitimacy for governments in regions most affected.

Given the sensitive political nature of food price changes, the international community has invested in ways to increase the transparency of the world’s food supply and to track demand to ensure that food commodities are always available when needed. Information that is both early and quantitative  about the probable impact on food availability is essential for well-functioning markets, especially when there is a severe and widespread drought in a  main crop production regions. Transparency in the global supply chain brings big benefits not only to growers but to everyone in the market.

Role of Satellite Data

Global satellite remote sensing systems have been around since the late 1970s. One of the principal uses of these systems is observing agriculture and its productivity with the goal being to understand the changes in tradable volumes of wheat, soybeans, maize and other commodities. Institutions can avoid surprises and uncertainties in availability of bulk food commodities by first assessing crop performance, followed by open discussion on issues and discrepancies in the crop condition assessments. By connecting changes in agricultural growing conditions to commodity markets, satellite data enables transparent and clear market-relevant information about probable production deficits.  This market-relevant information is then shared among the governments and institutional actors that keep commodity market volatility to a minimum.

Impact on Trade

Many food insecure countries, particularly in Africa, are importers of food. The African continent spends more than $65 billion on food imports every year. When drought affects domestic production in these countries, the governments may make politically driven policies to reduce exports even when food export bans can potentially disrupt food trade and markets. Food export bans then further increase food prices domestically. These food export decisions are often made without clear information about local production anomalies or cost of imports.

Collecting information on food production, trade and local prices has become harder than ever due to COVID-19 pandemic travel restrictions. Existing food security data, market information, data communication/dissemination, and data utilization are being challenged and struggles to provide timely information for effective policy decision making. This is critical in dealing with trade and production shocks resulting from drought, storms, and pests as well as from the economic challenges of combating the pandemic itself.

Systems to Inform Decision Making

Connecting local production to global demand for food is more important than ever given the rapidly growing urban populations and the slowing of global trade due to the pandemic. Ensuring that food supply information is transparent and timely is critical to ensuring that global food price changes are measured and not influenced by fear-driven policies.

Request a Demo
© 6grain 2020   |   All rights reserved | Privacy policy
Our Privacy Statement & Cookie Policy

Our website uses cookies to improve your online experience. They were placed on your device when you launched this website. You can change your personal cookie settings through your internet browser settings.

Privacy policy