Food Price Volatility and Domestic Stabilization Policies in Developing Countries

When food prices spike in countries with large numbers of poor people, public intervention is essential to alleviate hunger and malnutrition. For governments, this is also a case of political survival. Government actions often take the form of direct interventions in the market to stabilize food prices, which goes against most international advice to rely on safety nets and world trade. Despite the limitations of food price stabilization policies, they are widespread in developing countries. This paper attempts to untangle the elements of this policy conundrum. Price stabilization policies arise as a result of international and domestic coordination problems. At the individual country level, it is in the national interest of many countries to adjust trade policies to take ad-vantage of the world market in order to achieve domestic price stability. When countercyclical trade policies become widespread, the result is a thinner and less reliable world market, which further decreases the appeal of laissez-faire. A similar vicious circle operates in the domestic market: without effective policies to protect the poor, such as safety nets, food market liberalization lacks credibility and makes private actors reluctant to intervene, which in turn forces government to step in. The current policy challenge lies in designing policies that will build trust in world markets and increase trust between pub-lic and private agents.

Bibliographic Details

Main Author:	Gouel, Christophe
Language:	English en_US
Published:	World Bank, Washington, DC 2013-03
Subjects:	AGRICULTURAL PRICES, AGRICULTURE, ARBITRAGE, BENCHMARK, BORDER PRICE, BORROWING, CAPITAL ACCUMULATION, CEREAL PRICES, CHILD LABOR, CLOSED ECONOMIES, CLOSED ECONOMY, COLLECTIVE ACTION, COMMODITIES, COMMODITY, COMMODITY PRICE, COMPARATIVE ADVANTAGE, COMPETITIVE MARKETS, CONSUMERS, CONSUMPTION LEVELS, CRISES, DEBT, DEBTS, DEMAND CURVE, DEMAND FUNCTION, DEVELOPING COUNTRIES, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICY, DIRECT MARKET, DOMESTIC MARKET, DOMESTIC PRICE, DOMESTIC PRICES, ECONOMIC EFFICIENCY, ECONOMIC GROWTH, ECONOMICS RESEARCH, ELASTICITY, EXCESS DEMAND, EXCESS SUPPLY, EXPECTED UTILITY, EXPECTED VALUES, EXPENDITURE, EXPORTS, EXTERNALITIES, FINANCIAL ASSETS, FLOOR PRICE, FLOOR PRICES, FOOD PRICE, FOOD PRICES, FOREIGN CURRENCY, FORMAL ANALYSIS, FREE MARKET, FREE TRADE, FUTURES, GLOBAL MARKET, GOVERNMENT ACTIONS, HUMAN CAPITAL, INCOME, INCOME EFFECTS, INCOMES, INCOMPLETE MARKETS, INELASTIC DEMAND, INSURANCE, INTANGIBLE, INTERNATIONAL TRADE, ITC, LIQUIDITY, LOW-INCOME COUNTRIES, MACROECONOMICS, MARGINAL BENEFITS, MARGINAL COST, MARGINAL UTILITY, MARKET BEHAVIOR, MARKET CONTROL, MARKET EQUILIBRIUM, MARKET FAILURE, MARKET FAILURES, MARKET INTEGRATION, MARKET LIBERALIZATION, MARKET PRICE, MARKET STABILIZATION, MARKET TRANSPARENCY, MARKET VALUE, MARKETING, MOTIVATION, MULTILATERAL TRADE, NATIONAL INCOME, NATURAL DISASTERS, OPEN ECONOMIES, OPEN ECONOMY, OPPORTUNITY COST, OPPORTUNITY COSTS, PECUNIARY EXTERNALITIES, PER CAPITA INCOME, POLITICAL ECONOMY, POLITICAL UNREST, PORTFOLIO, PRICE BAND, PRICE BANDS, PRICE CEILING, PRICE CHANGE, PRICE CHANGES, PRICE FLUCTUATIONS, PRICE INCREASE, PRICE INCREASES, PRICE INDEX, PRICE INSTABILITY, PRICE LEVEL, PRICE MOVEMENTS, PRICE POLICY, PRICE RISK, PRICE RISKS, PRICE STABILITY, PRICE STABILIZATION, PRICE SUBSIDIES, PRICE TRENDS, PRICE UNCERTAINTY, PRICE VARIATIONS, PRICE VOLATILITY, PRIVATE MARKETS, PRODUCTION COSTS, PRODUCTIVITY, PRODUCTIVITY GROWTH, PUBLIC POLICY, PURCHASING, PURCHASING POWER, REDISTRIBUTIVE EFFECTS, RISK AVERSE, RISK AVERSION, RISK EXPOSURE, RISK MANAGEMENT, RISK MARKETS, RISK SHARING, SAFETY, SAFETY NET, SAFETY NETS, SALE, SALES, SAVINGS, SECURITY CONCERNS, SELLING PRICE, SELLING PRICES, SHARE OF STOCKS, SOCIAL PROTECTION, SPREAD, STABILIZATION POLICIES, STABILIZATION POLICY, STOCK MANAGEMENT, STOCK MARKET, STOCKS, SURPLUS, SURPLUSES, TAX, TRADE POLICIES, TRADE POLICY, TRADES, TRANSACTION COSTS, URUGUAY ROUND, VALUATION, WAGE RATES, WORLD MARKET, WORLD MARKETS, WORLD TRADE, WORLD TRADE ORGANIZATION, WTO,
Online Access:	http://documents.worldbank.org/curated/en/2013/03/17493176/food-price-volatility-domestic-stabilization-policies-developing-countries https://hdl.handle.net/10986/13187
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