The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development
issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the
names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those
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Policy Research Working Paper 5371
The 2006-08 commodity price boom was one of the
longest and broadest of the post-World War II period.
Apart from strong and sustained economic growth, the
recent boom was fueled by numerous factors, including
low past investment in extractive commodities, weak
dollar, fiscal expansion, and lax monetary policy in
many countries, and investment fund activity. At
the same time, the combination of adverse weather
conditions, the diversion of some food commodities
to the production of biofuels, and government policies
(including export bans and prohibitive taxes) brought
global stocks of many food commodities down to levels
not seen since the early 1970s. This in turn accelerated
the price increases that eventually led to the 2008 rally.
The weakening and/or reversal of these factors coupled
with the financial crisis that erupted in September 2008
and the subsequent global economic downturn, induced
This paper—a product of the Development Prospects Group—is part of a larger effort in the department to gain a better
understanding of the causes and consequences of the 2006–08 commodity price boom. Policy Research Working Papers
are also posted on the Web at http://econ.worldbank.org. The author may be contacted at firstname.lastname@example.org.
sharp price declines across most commodity sectors. Yet,
the main price indices are still twice as high compared to
their 2000 real levels, begging once more the question
about the real factors affecting them. This paper
concludes that a stronger link between energy and nonenergy
commodity prices is likely to be the dominant
influence on developments in commodity, and especially
food, markets. Demand by emerging economies is
unlikely to put additional pressure on the prices of food
commodities. The paper also argues that the effect of
biofuels on food prices has not been as large as originally
thought, but that the use of commodities by financial
investors (the so-called ”financialization of commodities”)
may have been partly responsible for the 2007/08 spike.
Finally, econometric analysis of the long-term evolution
of commodity prices supports the thesis that price
variability overwhelms price trends.