Food Price Volatility, Food Security, and Trade Policy Conference

In 2008, and again in 2011, global food prices reached unprecedented levels, posing serious threats to the food security of vulnerable people around the world. Such spikes in food prices are caused by harvest shortfalls, demand shocks, and global catastrophes. From September 18-19, the World Bank hosted the Food Price Volatility, Food Security and Trade Policy Conference, a far-ranging discussion of the policy challenges of mitigating the threats that these price shocks pose to the poor. Leading policy experts, practitioners and representatives of international organizations including Will Martin and Kaushik Basu (World Bank), Peter Timmer, (Harvard University), Ashok Gulati, (Indian Council for Research on International Economic Relations), and David Hallam (Food and Agriculture Organization) gathered to discuss the tradeoffs that policy makers face in trying to ensure food security for their populations, and to identify the policies that can increase livelihood security and food security.

Kaushik Basu, Senior Vice President and Chief Economist at the World Bank, drew on his own experiences as Chief Economic Advisor to the Government of India at the Ministry of Finance to illustrate the impact of the 2007 crisis in food prices. “For people who live on the brink, [food prices] can, in a matter of days, become a matter of life or death.” Highlighting the challenges that governments face in addressing food prices through trade policy measures, Basu cited research that Will Martin, Research Manager at the World Bank, has conducted on the effect that trade policy measures have on food prices. If countries respond individually there is a serious collective action problem, and “in the end you may achieve nothing but a slight worsening.”

Maros Ivanic (World Bank) discussed the complex impact of food prices on the poor, who can be both consumers and producers of staple crops.  Ivanic coauthored a study with Will Martin, “Short- and Long-Run Impacts of Food Price Changes on Poverty,” that uses household models based on data from expenditure and agricultural producers to understand the effect of volatility in food prices on poverty in individual countries and globally. They found that in the short-term, increases in food prices exacerbate poverty because the poor spend such a large portion of their income on food. Over the longer run, however, the poor benefit from increases in wages and smallholder farmers benefit from higher profits. Ivanic concluded that “while the initial jump in food prices was a threat to the poor, their sustained high level appears to be poverty reducing.” Brian Wright (University of California at Berkeley) cautioned, however, that jumps in food prices of the type seen on several occasions in the past few years tend to be much more intense than price declines, with these food price spikes posing serious risks to the poor.

The challenge, then, is to determine the best policy, or combination of policies, to alleviate the shorter-run impacts of increased food prices on the poor, and to prevent the negative long-term health effects of malnutrition. Ruslan Yemtsov and Ugo Gentilini (World Bank) have analyzed data concerning the degree to which social safety nets support the poorest people, as well as evidence comparing cash to food transfers. They have concluded that the costs associated with cash and voucher transfers tend to be substantially lower and are an efficient way to provide help that targets the poor.

Christophe Gouel (INRA) showed that, in countries where policy makers are concerned about food price volatility, there is logic to the oft-criticized policies of varying trade policies to offset changes in world prices, and encouraging increased holding of stocks. A major concern that arises with the use of trade measures such as export restrictions and import duty reductions is the beggar-thy-neighbor nature of these interventions, which appear to have contributed close to half of the increase in rice prices in 2006-8. Research by Kym Anderson, Maros Ivanic and Will Martin concluded that, for this reason, this policy was not effective in lowering global poverty in 2006-8, even though it looked effective to individual country policy makers.

At the national level, policy experts discussed the experiences of India, China, Africa, and Indonesia. Speaking about the decades-long struggle of experts on political economy to bridge the gap between short-term and long-term prices, Peter Timmer summarized Indonesia’s rice price stabilization policy as “an effort to always change next year’s price so it’s closer to the world price.” He also advocated a global strategy to “find a way, country by country, to increase grain storage” in order to bolster food security. Madhur Gautam (World Bank) reported on a study of India’s grain policy that found considerable success in stabilizing domestic prices, but at a surprisingly high cost. Research on policies in African countries presented by Thom Jayne (Michigan State University) and on low-income net food importing developing countries by David Hallam reported that many of these countries have been unable to offset the impacts of higher food prices on their domestic markets, leaving many poor people vulnerable to higher food prices during the recent crises.

There was consensus among attendees that multi-faceted policy approaches that take into account regional and global, and not just national, food security are necessary. Specifically, Will Martin warned against trade policies such as export restrictions that have beggar-thy-neighbor impacts on other countries. Martin’s research has found that, while such national policies help the poor domestically, in the long run they may increase poverty. “We need to continue to worry a lot about the collective action problems that do so much to contribute to price spikes that can be so damaging to the world’s poor. Otherwise, we get back into the situation that we had in 2008, where the price keeps going up. We need to think about different ways of dealing with these problems. We have a really rich menu of possible options: from regional, to WTO, from strictly trade policy, to broader, more encompassing strategies.”