An agent-based model of price crisis formation in the international trade of rice

Abstract

The food crisis of 2008 saw the price of rice tripled in a few months. Rice being the staple food of half of the world population, tens of millions faced malnourishment, poverty or social unrest. While mainstream economic theories and models remain unable to provide a unified account of the reasons of the crisis, recent research identifies internal dynamics emerging from the local interactions and behaviours of economic agents as more convincing drivers of the price dynamics.

From existing descriptions of the international trade markets in term of a dynamical network of heterogeneous country nodes, agent-based models (ABM) appear as a suitable alternative for the modeling of complex out-of-equilibrium price dynamics. Assuming that the price of rice in the domestic market of each trading country arises from the transmission of price information between trading agents and price-monitoring international institutions (PMI), responsible for monitoring the trade markets, we developed an ABM of domestic and global price formation in the international trade network (ITN) of rice.

Calibrated and validated against empirical data, our model was able to simulate a price spike in the global price of rice comparable to empirical time-series, as well as realistic changes in the trading strategy of the countries. Thus, the model provides computational evidence of the ability of a fully deterministic model to simulate crisis-like behaviour in the ITN based on internal mechanisms of information transmission, in the absence of external shocks. In addition, we identified several strategies to prevent or mitigate the development of global food price crises and compared them to existing policy recommendations.