Category: Micro

As promised here a few weeks ago, I have just finished revising my paper with Chris Barrett and David Just on the welfare impacts of food price volatility. Here is the abstract:

This afternoon, the Overseas Development Institute (ODI) tweeted a link to a new post of theirs by Steve Wiggins that discussed how rising food prices are not necessarily bad news:

“Last Thursday The Guardian ran with the headline “World food prices enter ‘danger territory’ to reach record high”. Is this right?

Not quite: there’s a difference this time.

It is not just cereals prices, nor just food prices, that are rising, but almost all agricultural prices — including those of the main tropical exports: cocoa, coffee and tea; cotton; palm oil; sugar; and rubber. Most low income countries, leaving aside the few with minerals and oil, depend heavily on these for their export earnings. Often much of the production comes from small farmers. Higher prices mean windfall gains for them, gains that are likely to be spent on local goods and services, with strong multipliers in additional jobs and incomes for others on low incomes.”

The post goes on to explain that rising food prices may actually improve the trade balances of countries like Burkina Faso, Ghana, Indonesia, Kenya, and Nicaragua, which is good for those economies.

In the comments section of the ODI post above, however, Mike Warner writes:

“Isn’t the point that VOLATILITY is bad for everyone (except speculators)? (…) So, perhaps more useful to focus on helping poor people/nations find ways to cope with increasing price VOLATILITY (whoever the net gainers and losers might be in the short term)?”

This is a very good point, and one I have been working on with coauthors Chris Barrett and David Just over the last few years.  What we have found will most likely surprise you, but it is a bit technical, so I will put it under the fold.