Indicator Name, Target and Goal
Indicator 2.c.1: Indicator of food price anomalies
Target 2.c: Adopt measures to ensure the proper functioning of food commodity markets and their derivatives and facilitate timely access to market information, including on food reserves, in order to help limit extreme food price volatility
Goal 2: End hunger, achieve food security and improved nutrition and promote sustainable agriculture
Definition and Rationale
The indicator of food price anomalies (IFPA) identifies abnormally high or low prices that occur for a food commodity price series over a period of time. The IFPA relies on a weighted compound growth rate(CGR) that accounts for both within year and across year price growth.
A food commodity price is the market valuation for a given unit of measure (kilogram, tonne, etc.) of a primary agricultural product that can be bought and sold, such as coarse grains or wheat.
A compound growth rate (CGR) is a geometric mean that assumes a random variable grows at a steady rate, compounded over a specific period of time. Because it assumes a steady rate of growth the CGR smooths the effect of volatility of periodic price movements.
Rationale and Interpretation:
Advance warning of impeding food crises emerging from abnormal growth in prices in global commodity markets can be critical to mitigating its impact. The food price surges in global markets in 2007-08 and 2011 are examples of this. Because prices summarize information held by a large number of economic agents, including their expectations regarding likely short-term developments in supply and demand, they are ideal to characterize the functioning of food commodity markets and may help to put in place policies that limit extreme price volatility.
If the indicator is larger than or equal to 1, the price for a given commodity is said to be abnormally high; if it is less than 1 and larger than or equal to 0.5, prices are considered moderately high; and otherwise, said to be Normal. Values close to 1 and higher should be closely monitored as they may be the result of a market shock. These shocks may be a result of a drop in supplies due to adverse weather or even policy shocks, such as import or export bans. Demand side shocks may also be responsible. Given that the aim of Target 2.c is “to ensure the proper functioning of food commodity markets and their derivatives and facilitate timely access to market information, including on food reserves, in order to help limit extreme food price volatility”, the indicator can act as a potential bell weather and allow policy makers to adopt policies that would reduce the impact of any market shock.
Data Sources and Collection Method
The data sources used for the calculation of the indicator are obtained from FAO’s Food Price Monitoring and Analysis Tool (FPMA-Tool) and FAOSTAT. The FPMA-Tool (http://www.fao.org/giews/food-prices/tool/public/#/home) compiles on a monthly basis 1 423 commodity price series in 90 countries. The commodity price data is obtained directly from national market information systems, national statistics institutes or ministries, or central banks. FAOSTAT compiles national data on the food CPI index for 150 countries on a monthly basis (http://www.fao.org/faostat/en/#data/CP). The data in FAOSTAT is obtained from the IMF as reported by countries.
Method of Computation and Other Methodological Considerations
Detailed information on the methodology can be found in the e-learning course titled: SDG Indicator 2.c.1 - Food price anomalies (http://www.fao.org/elearning/#/elc/en/course/SDG2C1). For more in depth understanding the methodological paper published by the Global Information Early Warning System (GIEWS) of FAO: http://www.fao.org/giews/food- prices/research/detail/en/c/235685/ is also available.
Comments and limitations:
This indicator cannot be used, and is not suitable, for forecasting of future events. It is only able to characterize previous events. The indicator can only characterize price growth and cannot not isolate ex-post any changes in policy that may affect local price trends.
Proxy, alternative and additional indicators: N/A
The IFPA can be disaggregated for a set of cereal commodities (wheat, rice, maize, sorghum/millet) that are critical for food consumption by country and market. The IFPA is also estimated using the food CPI index by country. This allows FAO to also characterize price movements of a complete and nationally defined food basket. Given granularity of the data, FAO can characterize the state of price volatility, and measure progress to reducing extreme shocks, at country, regional and global level.
Official SDG Metadata URL
Internationally agreed methodology and guideline URL
FAO SDG Portal and E-Learning:
FAO. Sustainable Development Goals Indicators. Available at http://www.fao.org/sustainable-development-goals/indicators/en/
FAO. E-learning Centre. Available at http://www.fao.org/elearning/
Baquedano, Felix G. (2015). Developing an Indicator of Price Anomalies as an Early Warning Tool: A Compound Growth Approach. FAO. Rome. Available at: http://www.fao.org/fileadmin/user_upload/foodprice/docs/resources/a-i7550e.pdf
International Organization(s) for Global Monitoring
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