Food price shocks: ‘Protectionism’ not the answer; here are the real solutions

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Published: April 25, 2019 1:54:21 PM

The report also pointed out that the increase in food prices combined with government policy responses in 2010-11 tipped 8.3 million people into poverty.

Food price shocks are a big concern for an economy especially the developing and least developed, where the purchasing power of people are not adequately high. However,in this case, combined efforts by all countries to dampen the domestic price movements may instead end up amplifying the hike in global prices, thus, worsening the situation for the most vulnerable section, said the World Bank in a report.

“When countries intervene to dampen the effect of food price fluctuations on their citizens, the collective intervention of many countries can produce the opposite of the intended effect and amplify movements in world prices – to the detriment of the most vulnerable populations,” the World Bank said in its recent Commodity Markets Outlook Report.

Following post-2000 food price shocks, countries resorted to various trade policies to insulate domestic markets from rise in world prices. Such policies became increasingly common during the 2010-11 food price spike. But unexpectedly, together they resulted into worsening the condition by further increasing the food prices, said the report. Insulation policies accounted for 40 percent of the increase in world wheat prices and one-quarter for world maize prices, noted the report.

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The report also pointed out that the increase in food prices combined with government policy responses in 2010-11 tipped 8.3 million people into poverty.

These findings highlight how the use of trade policy interventions to insulate domestic markets may not be effective in protecting the most vulnerable populations groups, said the report.

Thus, it instead suggested policy makers to use other policies to reduce the impact of large food price fluctuations. These include targeted safety-net interventions such as cash transfers, food and in-kind transfers, school feeding programs, and public works programs. Measures such as crop and weather insurance and warehouse receipt systems could also be used as risk management instruments, according to the report. These interventions could be combined with targeted nutrition and health programs as well as regulatory interventions to improve health outcomes, the report added.

Meanwhile, the World Bank report also projected a fall in agriculture prices by 2.6 percent this year but it is expected to rebound in 2020 due to lower crop production and higher costs for energy and fertilizers. “An escalation of trade tensions would likely push prices lower, but higher-than-expected energy costs could lift prices more than expected,” said the report.

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