Trade policy and food price volatility in LIFDCs by David Hallam Food and Agriculture Organization Discussion: Paulo Bastos World Bank

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Trade policy and food price volatility in
LIFDCsbyDavid HallamFood and Agriculture
OrganizationDiscussionPaulo BastosWorld
Bank
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Summary

• A. Public goods provided by FAO
• GIEWS price tool
• Food and Agriculture Policy Decision Analysis
  (FAPDA)
• Reports, country-case studies
• B. Trade policy changes in response to the
  2007-08 food price crisis and some of their
  impacts (focus on LIFDCs and cereals)

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Trade policy responses to 2007/2008 food price
crisis

• 1. Reduction of import tariffs
• Dominant response in the face of price hikes
  (consistent with Martin and Anderson, 2012 AJAE
  Bastos, Straume and Urrego, 2013 JIE)
• Frequently led to permanent reductions in import
  tariffs (liberalizing effect)
• - interesting finding
• - would like to see more systematic research on
  this issue
• Likely impacts
• - all else equal, reduction of food prices faced
  by domestic consumers
• - if all countries do this at the same time,
  world price spikes may be exacerbated (Martin
  and Anderson, 2012)
• - if permanent and generalized, tariff
  reductions would be expected to reduce price
  levels faced by consumers, increase trade
  volumes, and raise consumer welfare in a
  permanent way

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Trade policy responses to 2007/2008 food price
crisis

• 1. Reduction in import tariffs
• If permanent, tariff reductions will cease to
  become a relevant stabilization instrument
• - In fact, import tariffs are already low in
  many LIFDCs

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Trade policy responses to 2007/2008 food price
crisis
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Trade policy responses to 2007/2008 food price
crisis
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Trade policy responses to 2007/2008 food price
crisis

• 1. Reduction in import tariffs
• Need to consider other instruments to address
  food security
• Temporary import subsidies are not targeted to
  the poor, are difficult to finance, and have
  collective action problems
• Optimal storage policies appear to be difficult
  to implement in many countries and are also
  likely to have collective action problems
• Food/cash subsidies in the context of social
  safety nets targeted to the poor appear to be a
  superior (first best) policy option
• But several low income net food importers may
  lack institutional capacity to implement them
  effectively? (Needs to be part of longer term
  policy, not just designed/implemented in times of
  crises)

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Trade policy responses to 2007/2008 food price
crisis

• Methodological point
• A macro definition of net food importers hides
  a lot of within-country heterogeneity
• A large share of food imports may be consumed by
  richer/urban households
• Even in net food importing countries, incomes of
  the poorer households and regions are often
  directly or indirectly linked with agricultural
  production/prices (even in the short term?)
• This within-country heterogeneity may be behind
  apparent schizophrenia of trade policies adopted
  in these countries (e.g. removing import tariffs
  and imposing import quotas) warrants more
  research
• Puts additional limits to the use of trade policy
  (macro instrument) to address issues of food
  security driven by price volatility

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Trade policy responses to 2007/2008 food price
crisis

• 2. Export restrictions
• Used less frequently than import tariffs in these
  countries during 2007-08 crisis
• Typically imposed temporarily (unlike reductions
  in import tariffs)
• Often are an ineffective stabilization
  instruments
• Even if apparently effective for domestic price
  stabilization, they are worrisome in terms of
  potential effects on world prices due to
  collective action problems
• Negative impacts on local production, wrong
  signal to longer term supply and export decisions
  by firms
• Firm-level literature trade literature points to
  high sunk costs of exporting and emphasizes
  negative role of trade policy uncertainty for
  export performance (Limao and Handley, 2012,
  2013)