Why do agricultural product prices fluctuate so dramatically?

　　Over the years, media outlets have frequently reacted with alarm to fluctuations in agricultural product market prices, even coining a string of "quirky" new terms in the process. Examples include "Garlic Is Ruthless," "Beans Are for Play," "Ginger Army," "Onion Shockwave," and "Sugar Emperor"—all of which share one thing in common: they highlight astonishment over soaring prices. Meanwhile, there are remarkably few "unusual" terms used to describe falling prices—perhaps only "Dropping Steadily." This might reflect the fact that journalists, as urban consumers, tend to feel price hikes more directly and acutely than price drops.

　　Overreacting to price fluctuations in agricultural markets can stem from various reasons. But at the core of it lies a fundamental lack of understanding about the unique characteristics of agricultural supply and demand. Given these traits, significant price swings in certain agricultural products are actually normal—and unfortunately, largely unavoidable.

　　For example, products like scallions, ginger, and garlic are classified as ingredients or condiments within the vegetable category. Compared to ordinary vegetables, their demand is much lower, resulting in very low price elasticity. When prices drop, households and restaurants won’t significantly increase their purchases; similarly, when prices rise, they won’t cut back drastically. This is because scallions, ginger, and garlic play an indispensable role in enhancing the flavor of certain dishes—and are difficult to replace altogether. At the same time, since these ingredients are used in small quantities, they account for only a tiny fraction of the overall cost of vegetables. Similarly, the demand for staple foods like grains also exhibits very low elasticity. The reason is that grains are essential as a primary source of nutrition and are virtually irreplaceable in daily diets. Moreover, the amount spent on grains typically represents a relatively small portion of household budgets compared to expenses on meat, poultry, eggs, dairy, or even fruits and vegetables.

　　Low demand elasticity is the underlying reason behind soaring prices. When demand is inelastic, even a tiny change in supply can lead to significant price fluctuations. For instance, when supplies of scallions, ginger, and garlic shrink, consumers—unwilling to cut back on their purchases—drive prices higher. And as prices rise, people still don’t want to buy less, so the price continues to climb… until someone finally decides to reduce their buying—or perhaps everyone starts cutting back slightly, adopting a more frugal approach. A 10% drop in the supply of scallions, ginger, and garlic is enough to push prices up by 50% or even more. That’s a conservative estimate. Take pork as an example: We have concrete data showing that exactly this kind of scenario played out about a decade ago, leading to a dramatic surge in pork prices. At the time, pork supplies declined by roughly 8%, yet prices soared by more than 60%. Given that the elasticity of demand for scallions, ginger, and garlic is likely even lower than that of pork, a similar percentage reduction in supply could trigger an even steeper price increase.

　　A 10% reduction in the yield of scallions, ginger, and garlic is surprisingly common. The reason is simple: abnormal weather patterns—such as prolonged rainfall combined with cooler temperatures—or outbreaks of pests and diseases can easily lead to yield fluctuations of 10% or even more. Meanwhile, a 50% surge in prices often serves as a strong incentive for farmers to expand their planting areas. As a result, even farmers who previously didn’t grow these crops may start switching to scallions, ginger, and garlic. In China, where small-scale household farming dominates, herd behavior and market-driven reactions are widespread. Consequently, by the end of the next production cycle, the supply of scallions, ginger, and garlic on the market might not have increased by just 10%, but could instead jump by 20%, 30%, or even higher. Naturally, this would drive prices sharply downward. But here’s the twist: even if prices drop by 50%, consumer demand for these staples wouldn’t necessarily rise significantly. And since scallions, ginger, and garlic aren’t exactly easy to store long-term, producers are eager to sell off their surplus quickly. This leads to a vicious cycle of price wars, with farmers slashing prices aggressively just to move their goods—and ultimately, much of the produce ends up rotting unsold. And so, the cycle begins anew: supply shrinks, prices soar; then supply surges again, driving prices back down. I’ll never forget my grandfather, who lived deep in the mountains before I went to college. He grew his own garlic and brought it to the local market to sell—it fetched excellent prices that year. Overjoyed, I urged him, “Grandpa, why don’t you plant even more next year?” But to my surprise, he replied, “No way—I’m not growing any more next year. There’ll be too many others doing it, and the price will surely crash!” Though my grandfather’s understanding of economics was limited to recognizing the value of Chinese currency, he inadvertently taught me the very first lesson about the volatile nature of agricultural commodity markets.

　　The cyclical fluctuations in the pork market provide another prominent example. When prices rise, producers respond by increasing output through two main methods: First, they breed existing adult sows, allowing them to carry piglets through gestation before raising those piglets into market-ready fattened pigs— a process that takes nearly a year from start to finish. Alternatively, farmers may expand their herd by introducing more breeding gilts, which, once mature, are then bred to produce piglets that eventually grow into fattened pigs—another approach that spans roughly a year and a half. By the time these newly increased numbers of fattened pigs reach the market for sale, the overall supply of pork surges dramatically, causing prices to begin declining. At this point, farmers typically respond by scaling back production—starting with reducing their herds of breeding sows. This complete cycle of supply-and-demand adjustments usually unfolds over a period of about three years.

　　Due to factors such as low demand elasticity, volatile supply, difficulties in product storage, and biological cyclical patterns—characteristics that are inherent to agricultural products rather than isolated occurrences—the market prices of agricultural goods naturally experience fluctuations.

　　The key characteristics of the changes in agricultural product prices can be summarized in two points: first, cyclicality; and second, amplification. Amplification is a particularly important feature. When it comes to reflecting supply-and-demand dynamics, price movements serve as a clear signal: rising prices indicate scarcity, while falling prices suggest an oversupply. This is common knowledge for everyone. However, it’s crucial to note that this price signal tends to be amplified—or even exaggerated—rather than accurately reflecting the underlying conditions. In other words, a significant rise in prices doesn’t necessarily mean the shortage is exceptionally severe, and a sharp drop in prices doesn’t automatically imply that the surplus is particularly pronounced. The inherent nature of products with low demand-price elasticity is that even tiny changes in quantity can trigger substantial price fluctuations. As a result, the magnitude of price changes often ends up being several times—or even many times—greater than the corresponding shifts in quantity. Conversely, small variations in quantity may translate into only a fraction—or perhaps one-tenth or one-twentieth—of the price movement.

　　These two characteristics of agricultural product market price changes—cyclical nature and the amplification of price signals—are profoundly significant. The media should avoid overreacting, especially by continuing to invent bizarre new terms that "stoke the flames." Meanwhile, the government must resist misinterpreting these trends—whether out of panic or blind optimism—and refrain from merely reacting to short-term market fluctuations by either "adding unnecessary embellishments" or "pouring fuel on the fire." Instead, policymakers should focus on long-term, stabilizing measures. For their part, producers and businesses must steer clear of misguided judgments and avoid passively following market trends with reckless adjustments. Instead, they should proactively embrace and adapt to underlying market dynamics, relying on informed forecasts to guide sound, science-based decision-making. If these principles are followed, price volatility can be moderated—or even stabilized altogether. Otherwise, market instability will only intensify, ultimately exacting a real economic cost—not just for businesses, but also for governments themselves.