Price diversification across commodities should reflect the quality of the product, while biofuels require a strategic allocation of resources, which are notably limited, David Laborde, director of the agrifood economics division at the United Nations' Food and Agriculture Organization, told S&P Global in an interview at the IGC Grains Conference, held in London over June 11-12.
Speaking on whether price diversification could be a barrier to international trade, Laborde said that varying prices and premiums can often reflect different qualities.
Qualities of wheat, he continued, could be different for animal feed and human consumption, with varying degrees of moisture and protein content.
"Prices should reflect the quality of the product. When trading wheat, or rice, such as basmati or broken, buyers are always looking for something specific," Laborde said.
Price differentiality, he added, depends on the "market you're selling to, and how the value is distributed across the value-chain."
For instance, "some African countries produce very good coffee, but the price they sell at may not capture the entire value-addition. In other cases, despite having good quality, commodities are sold at a lower price to maintain a level of price competition," Laborde said, making a reference to competitive markets.
Competitive pricing and tariff quotas
"When you have a product of higher quality, you may be able to sell at a higher price. But if it is a very competitive market, you may have to deliberately lower your prices for competitive advantage," Laborde said.
The FAO director also made a note of tariff rate quotas and their significance in preferential trade arrangements.
"Some countries with access to this quota can actually sell at a higher price, either from WTO quotas or bilateral agreements, even in protective markets," Laborde said.
Economic access a barrier to food security
Talking about price equalization as a step towards achieving food security, Laborde remarked that it depends on "which level we equalize."
"Economic access to food is still the main barrier of food security. I think having a more integrated market can help, especially to manage shortages," Laborde said.
Equalization of prices as a means of achieving food security can end up making the least developed countries pay the same price as the developed nations, he added.
Strategic allocation for biofuels
Reflecting on the move towards biofuels, Laborde said that "we just need to be careful about what type of commodities we are talking about, based on their efficiency to produce biofuels."
Laborde spoke about the need for a "strategic allocation," Laborde compared making ethanol from sugarcane against producing it from wheat, terming the former as a more efficient allocation, while the other could have associated challenges.
"The level of price also matters a bit," Laborde said, adding that for biofuels, there are differences between "the world price and the reality on ground."
"What I think is still a source of concern is that in order to produce biomass and biofuels, we need land, we need water, we need all these resources, and that's not something we have," he remarked.
More importantly, "biofuels are not driven by market forces, they are driven by policies," Laborde said.
Laborde added that policies demand "distortions," and it is key to have a strategic allocation framework, since the resources are limited.
