Agricultural price distortions: trends and volatility,past, and prospective

Historically, earnings from farming in many developing countries have been depressed by a pro‐urban bias in own‐country policies, as well as by governments of richer countries favoring their farmers with import barriers and subsidies. Both sets of policies reduced global economic welfare and agricultural trade, and added to global inequality and poverty. Over the past three decades, much progress has been made in reducing agricultural protection in high‐income countries and agricultural disincentives in developing countries. However, plenty of price distortions remain. As well, the propensity of governments to insulate their domestic food market from fluctuations in international prices has not waned. Such insulation contributes to the amplification of international food price fluctuations, yet it does little to advance national food security when food‐importing and food‐exporting countries equally engage in insulating behavior. Thus there is still much scope to improve global economic welfare via multilateral agreement not only to remove remaining trade distortions but also to desist from varying trade barriers when international food prices gyrate. This article summarizes indicators of trends and fluctuations in farm trade barriers before examining unilateral or multilateral trade arrangements, together with complementary domestic measures, that could lead to better global food security outcomes.     

The effects of China's growth on the food prices and the food exports of other developing countries

This article explores the impacts of China's growth in the international markets of agricultural products along two dimensions: food price inflation and export growth in other developing countries. China's food imports of vegetable oils have grown dramatically over the last decade, linking China's economic growth to the recent increases in global food prices. If China is a source of global food price inflation, exporting countries will benefit whether they sell directly to China or not. These direct and indirect linkages are explored using a short‐run, partial‐equilibrium model of international trade in agricultural products in which consumer prices and trade costs are derived from bilateral trade flows. China's effects on food prices and exports are estimated by reducing Chinese food expenditures in 2007 by half, roughly China's level of expenditures in 1995. Results indicate that food prices as measured by CES price indexes in developing Asia, Africa, and Latin America would have been reduced by 1.27%, 0.32%, and 0.22%, respectively. China has been an important source of growth for exporters selling directly to China. There is no evidence of export growth due to an overall increase in food prices caused by China's growth.     

Evaluating price transmission between global agricultural markets and consumer food price indices in the European Union

This paper uses error correction models to evaluate the extent to and speed at which world agricultural commodity price movements affect consumer food prices in the European Union member states. We consider three types of world commodity price indices, each containing different commodities and weighting criteria. Results reveal a long‐run relationship between world agricultural commodity and consumer food prices in over half of the member states. Consumer prices in different member states and categories of member states respond differently to specific world price indices, suggesting that there are disparities in the structure and the efficiency of their food markets. The eurozone founders generally have lower transmission elasticities. This should be taken into account when predicting the impacts of extreme world price volatility and consumer food price rises, prompting governments to pay attention to the most vulnerable households.     

Impacts of Market Reform on Spatial Volatility of Maize Prices in Tanzania

Maize is one of the major staples and cash crops for many Tanzanians. Excessive volatility of maize prices destabilises farm income in maize‐growing regions and is likely to jeopardise nutrition and investment in many poor rural communities. This study investigates whether market reform policies in Tanzania have increased the volatility of maize prices, and identifies regional characteristics that can be attributed to the spatial price volatility. To achieve the objectives, an autoregressive conditional heteroskedasticity in mean (ARCH‐M) model is developed and estimated in this study. Results show that the reforms have increased farm‐gate prices and overall price volatility. Maize prices are lower in surplus and less developed regions than those in deficit and developed regions. Results also show that the developed and maize‐deficit regions, and regions bordering other countries have experienced less volatile prices than less developed, maize‐surplus and non‐bordering regions. Our findings indicate that investments in communication and transportation infrastructures from government and donor countries are likely to increase inter‐regional and international trade, thereby reducing the spatial price volatility in Tanzanian maize prices in the long run.     

Price volatility in Niger millet markets

Price volatility of food staples is one of the most complex factors affecting food security. Recent food price crises have raised academic interest in improved volatility assessment. The widely held assumption in econometric volatility models that long‐run volatility is constant, has been recently questioned and partly blamed for these crises. A multiplicative MGARCH model recently proposed by Bauwens et al. is used in this article to model price volatility transmission along the Niger millet marketing chain. Results suggest important volatility links between consumer and producer prices, as well as noteworthy differences between short and long‐run price dynamics.     

Rising Food Prices and Household Welfare: Evidence from Brazil in 2008

Food price inflation in Brazil in the 12 months to June 2008 was 18%, whereas overall inflation was 7%. Using spatially disaggregated monthly data on consumer prices and two different household surveys, we estimate the welfare consequences of these food price increases, and their distribution across households. Because Brazil is a large food producer, with a predominantly wage‐earning agricultural labour force, our estimates include general equilibrium effects on market and transfer incomes, as well as the standard estimates of changes in consumer surplus. Although the expenditure (or consumer surplus) effects were large, negative and markedly regressive everywhere, estimates of the market‐income effect were positive and progressive, particularly in rural areas. Because of this effect on the rural poor, and of the partial protection afforded by increases in two large social assistance benefits, the overall impact of higher food prices in Brazil was U‐shaped, with middle‐income groups suffering larger proportional losses than the very poor. Nevertheless, as Brazil is 80% urban, higher food prices still led to a greater incidence and depth of poverty at the national level.     

中国粮食价格波动的成因及经济效应分析

选取1978—2011年的年度数据,运用协整对中国粮价波动的成因进行实证。结果表明：粮食生产量、农业生产资料价格指数、居民消费价格指数、粮食消费量、国际粮食价格、广义货币量和粮食库存量对粮食生产价格影响显著;粮食生产量、居民消费价格指数、粮食净进口量对粮食零售价格影响显著。而粮价波动的经济效应：2种粮食价格对粮食产量的影响不同;粮价上涨农民得到的很少;不能确定物价与2种粮食价格是否有关。最后提出了相关政策建议。     

Cereal price shocks and volatility in sub‐Saharan Africa: what really matters for farmers’ welfare?

The lack of information as well as some misperceptions about the distinction between the welfare consequences of higher versus more volatile cereal prices has limited the effectiveness of policy interventions during the recent food crises in many developing countries. This article proposes an integrated empirical strategy to investigate and compare the different effects of these two phenomena and tests it using nationally representative household survey data from four sub‐Saharan countries. Results show that the negative impacts of a cereal price increase substantially outweigh the effects of price volatility on household welfare across the entire income distribution. The amplitude and the distribution of those effects depend heavily on specific factors, such as: the weight of food consumption over total expenditure; the budget share devoted to cereals; the substitution effect among food groups; and the relative number of net sellers versus net buyers accessing the market. We also show that volatility mainly harms the poorest quintile of the population.     

Food price increases and net food importing countries: lessons from the recent past

Recent increases in food and other commodity prices have highlighted concerns that many poor countries are net food importers and higher food prices would worsen their trade balances. In this article, we analyze the changes in food trade balances associated with the 32% increase in food prices from 2000/2001 to 2004/2005. We find a small deterioration in food trade balances of low‐income countries and an improvement in middle‐income countries. The deterioration is most severe for countries in conflict and small island states, so attention should be placed first on these countries and on a few very‐low‐income countries that are also vulnerable. Because low‐income countries as a group had much lower agricultural GDP growth rates than middle‐income countries, the answers to food vulnerability in low‐income countries should probably be addressed within the context of incentives for agricultural production.     

Using a functional approach to test trending volatility in the price of Mexican and international agricultural products

In this article, we extend the traditional GARCH(1,1) model by including a functional trend term in the conditional volatility of a time series. We derive the main properties of the model and apply it to all agricultural commodities in the Mexican CPI basket, as well as to the international prices of maize, wheat, swine, poultry, and beef products for three different time periods that implied changes in price regulations and behavior: before the North American Free Trade Agreement (NAFTA; 1987–1993), post‐NAFTA (1994–2005), and commodity supercycle (2006–2014). The proposed model seems to adequately fit the volatility process and, according to heteroscedasticity tests, also outperforms the ARCH(1) and GARCH(1,1) models, some of the most popular approaches used in the literature to analyze price volatility. Our results show that, consistent with anecdotal evidence, price volatility trends increased from the period 1987–1993 to 1994–2005. From 1994–2005 to 2006–2014, trends decreased but the persistence of volatility increased for most products, especially for international commodities. In addition, we identify some agricultural products such as avocado, beans, and chicken that, due to their increasing price volatility trends in the 2006–2014 period, may present a risk for food inflation in the short run.     

The linkage between the U.S. ethanol market and developing countries’ maize prices: a panel SVAR analysis

The major expansion of U.S. ethanol production raises concerns about the potential detrimental impacts on developing countries’ agricultural prices, farm income, and food security. To assess the sensitivity of maize prices to ethanol production, this study explores the linkage between the U.S. ethanol market and developing countries’ maize prices. The econometric approach, based on a panel structural vector autoregression model, captures market interdependencies and the likelihood that developing countries’ responses are both heterogeneous and dynamic. The results indicate that the U.S. ethanol market's impacts on maize prices in developing countries are heterogeneous and that coastal countries are more susceptible to U.S. economic shocks. The estimates also suggest that countries more dependent on food imports and/or receiving U.S. food aid are at a higher risk of being affected by such shocks. Overall, the results indicate that those countries with the greatest sensitivity and exposure to global agricultural commodity markets could benefit from domestic policies and international assistance, which reduce their exposure to impacts from the U.S. maize market.     

Importing High Food Prices by Exporting: Rice Prices in Lao PDR

Lao PDR has extensive export controls on its staple food, glutinous rice, which keep domestic prices low relative to international prices. Using price, harvest, and export data this paper analyses how glutinous rice prices in Laos PDR are related to those in its trading partners, Thailand and Vietnam. We find that rice prices in Lao PDR are more likely to rise following a good harvest year than a bad or a normal year. This is consistent with export controls being relaxed after good harvests, leading to an increase in exports early in the season and rising prices later as stocks are depleted. There is thus a case for removal of trade restrictions since they give rise to price spikes while keeping the long‐term price of glutinous rice low, and thereby hinder increases in income from agriculture. However, since high rice prices are likely to affect the poor negatively in the short to medium term, a combination of an export tax and cash transfers is recommended during the transition period. Although this is a case study of Lao PDR, the findings may equally apply to other developing countries that export their staple food.     

Transaction Cost Thresholds in International Rice Markets

Recent episodes of high and volatile prices for grains such as rice have raised concerns about their implications for hunger and poverty. We model price relationships between international rice prices and 221 domestic prices in 47 developing countries that import rice. We use a threshold vector error correction model that accounts for transaction costs of trade in spatial price transmission, and an improved regularised Bayesian threshold estimator for threshold models. Our results show that threshold values are higher after 2008 than before, which suggests that transaction costs in international rice trade have increased in recent years. Threshold values are highest for Latin American countries followed by African and Asian countries, and higher for retail than for wholesale prices. Since 2008, price transmission is slower in countries that responded to high and volatile prices with domestic market‐based interventions such as price controls and faster in countries that responded by lowering tariffs and by implementing production support measures.     

Least-cost cheap-food policies: some implications of international food aid

Many low-income countries pursue cheap-food policies in which consumers pay subsidized prices for bread, rice and other staples. This paper addresses the issue of why different governments select different food subsidy policies, using multiple instruments rather than a simple across-the-board subsidy to provide consumers with access to cheap food. It examines the optimal structure of cheap-food policies in the context of a partial equilibrium model in which the country may he large in trade, and is able to combine import subsidies or tariffs, and output taxes or subsidies, to transfer income to consumers through the market. The model allows for a marginal opportunity cost of government revenues greater than one dollar. In addition, in the model, food aid from overseas may be either given away to the consumer, or given to the government for subsequent sale in the domestic market. The results indicate that only by happenstance will a country choose to use a pure consumption subsidy or a pure import subsidy to transfer income to consumers. In addition, an increase in international food aid does not necessarily lead the government to reduce producer and consumer prices for a commodity.     

World food prices and poverty in Indonesia

Spikes in international food prices in 2007–2008 worsened poverty incidence in Indonesia, both rural and urban, but only by small amounts. The paper reaches this conclusion using a multisectoral and multihousehold general equilibrium model of the Indonesian economy. The negative effect on poor consumers, operating through their living costs, outweighed the positive effect on poor farmers, operating through their incomes. Indonesia's post‐2004 rice import restrictions shielded its internal rice market from the temporary world price increases, muting the increase in poverty. But it did this only by imposing large and permanent increases in both domestic rice prices and poverty incidence. Poverty incidence increased more among rural than urban people, even though higher agricultural prices mean higher incomes for many of the rural poor. Gains to poor farmers were outweighed by the losses incurred by the large number of rural poor who are net buyers of food, and the fact that food represents a large share of their total budgets, even larger on average than for the urban poor. The main beneficiaries of higher food prices are not the rural poor, but the owners of agricultural land and capital, many of whom are urban based.     

粮食价格波动对农民增收的影响探析——以河南省为例

粮食价格对农民收入至关重要,是农民维持基本生活的重要保证。文章在分析我国粮食价格波动的历史轨迹的基础上,阐述了农民收入的构成,并对粮食价格波动对农民增收造成的影响进行研究。结果表明:粮食价格波动会影响农民收入水平,进而影响农民的农业生产积极性;粮食价格下降,会促进非农就业的工资收入,进而提升农民收入水平,粮食价格波动对相关工业品价格上涨的影响较小。并从加强政府引导、加快农业产业化进程、建立健全粮食价格稳定长效机制、加强粮食流通体系建设等方面提出稳定粮食价格的关键策略,以期为我国粮食安全及农民增收提供一定的理论参考。     

The impact of OECD biofuels policies on developing countries

OECD countries’ biofuels policies, derived from energy and environmental legislation and activated by high oil prices, were the primary cause of not only the sudden spike in grain and oilseed prices in 2007–2008 but also of the ensuing price volatility. Even though developing countries have a comparative advantage in biofuels production, they were shut out of rich countries’ biofuel markets by trade discriminating biofuels policies. Developing countries would not have been able to take full advantage of the price spike in the short run anyway given the low supply elasticities and the long time required for biofuel production to come online, unlike for corn‐ethanol. The controversy over the right price of food is misplaced and policy makers should instead focus on improving biofuels policies, which like their counterpart agricultural policies in previous decades, have damaged the welfare of developing countries.     

Higher fuel and food prices: impacts and responses for Mozambique

Rising world prices for fuel and food represent a negative terms‐of‐trade shock for Mozambique. The impacts of these price rises are analyzed using various approaches. Detailed price data show that the world price increases are being transmitted to domestic prices. Short‐run net benefit ratio analysis indicates that urban households and households in the southern region are more vulnerable to food price increases. Rural households, particularly in the North and Center, often benefit from being in a net seller position. Longer‐term analysis using a computable general equilibrium (CGE) model of Mozambique indicates that the fuel price shock dominates rising food prices from both macroeconomic and poverty perspectives. Again, negative impacts are larger in urban areas. The importance of agricultural production response in general and export response in particular is highlighted. Policy analysis reveals difficult trade‐offs between short‐run mitigation and long‐run growth. Improved agricultural productivity has powerful positive impacts, but remains difficult to achieve and may not address the immediate impacts of higher prices.     

Agricultural Commodity Price Shocks and Their Effect on Growth in Sub‐Saharan Africa

Commodity price shocks are an important type of external shock and are often cited as a problem for economic growth in Sub‐Saharan Africa. We choose nine Sub‐Saharan African countries that are heavily dependent on a single agricultural commodity for a significant portion of their income. This paper quantifies the impact of agricultural commodity price shocks using a structural non‐linear dynamic model. The novel aspect of this study is that we determine whether the response of per capita GDP for the selected Sub‐Saharan African countries is different to unexpected increases in agricultural commodity prices as opposed to decreases in prices. We conclude that there is very little evidence that an unanticipated price increase (decrease) will lead to a significantly different response in per capita incomes.     

Modeling regime‐dependent agricultural commodity price volatilities

In stark contrast to financial markets, relatively little attention has been given to modeling agricultural commodity price volatility. In recent years, numerous methodologies with various strengths have been proposed for modeling price volatility in financial markets. We propose using a mixture of normals with unique GARCH processes in each component for modeling agricultural commodity prices. While a normal mixture model is quite flexible and allows for time varying skewness and kurtosis, its biggest strength is that each component can be viewed as a different market regime and thus estimated parameters are more readily interpreted. We apply the proposed model to ten different agricultural commodity weekly cash prices. Both in‐sample fit and out‐of‐sample forecasting tests confirm that the two‐state NM‐GARCH approach performs better than the traditional normal GARCH model. A significant and state‐dependent inverse leverage effect is detected only for pork in the regime where the price is expected to drop, indicating the volatility in this regime tends to increase more following a realized price rise than a realized price drop.