Category: Policy

From a longer IRIN article published last week:

Recent responses to high prices have increasingly tended to focus on reducing price volatility — sharp fluctuations in food prices.

G20 countries in their June 2011 ministerial declaration recommended measures such as building grain reserves, a global market information system and regulating financial transactions in commodities markets.

But economists like Brian Wright, professor of agricultural and resource economics at the University of California, Berkeley, and Christopher Barrett, professor of applied economics at Cornell University, believe more emphasis needs to be placed on underlying policy problems.

“Volatility is a symptom of a structural problem of low stocks,” says Wright. “When supplies get to certain low levels the prices become vulnerable to volatility.”

He makes a distinction between the impact of one-off production shortfalls and low grain stocks over a longer period: “Though [price] spikes do not indicate times of large aggregate food grain production shortfalls, it is easy to check that they do indicate times when aggregate stocks were low.”

Barrett would like to see more emphasis on boosting production and improving distribution systems to increase the supply of food and bring down prices. “Food price volatility gets addressed naturally as food supplies expand, bringing down prices and encouraging expansion of price-stabilizing inventories.”

Traditional policy responses to price volatility tend to benefit large farmers in developed countries and not the poor consumer or producer in a developing country, said Barrett.

“Every dollar spent on developing expensive reserves or marketing systems is a dollar taken away from improving yields, from developing drought-tolerant rice or setting up marketing infrastructure in a developing country,” he said.