BOX 1
Trade Restrictions Amplify Food Price Spikes Kym Anderson, University of Adelaide
I
n 2011 export bans continued to hurt poor people. Governments often raise
import barriers during turbulent times to mitigate immediate domestic concerns such as unemployment, but during the recent global financial and food price crises some countries raised export bar- riers.1
Such government action aims to
make exporting food more difficult and expensive, thereby protecting domestic consumers from the effects of an interna- tional food price spike. Examples in 2011 were bans on grain exports in Tanzania, Ethiopia, and Russia—all of which were lifted before the end of the year. Such responses exacerbate the price spike (by restricting supplies in the international market) and affect the international wel- fare transfer associated with that spike in terms of trade (which defines how much a country needs to export in exchange for a given import volume).2 Much less appreciated is the fact that
governments of food-importing countries are equally concerned for their consumers.
As a result, many of them lowered their food import restrictions, and some even switched to food-import subsidies. This further exacerbated the international price spike—which meant it weakened the ini- tial attempt by food-exporting countries to shield their consumers. New evidence on the extent of the
change in domestic relative to inter- national prices in food exporting and importing countries reveals that
• historically, only around half the move- ment in international food prices is transmitted to domestic markets within the first year;
• both grain-exporting and grain-import- ing countries react to food price spikes with a similar speed and on a similar scale when restricting trade;
• the changes in restrictions on global grain trade during 2006–08 are responsible for estimated increases in the international prices of rice, maize,
and wheat of around two-fifths, one- fifth, and one-tenth, respectively;
• domestic prices of wheat would have risen less on average across all coun- tries if trade restrictions had not been changed; and
• altered trade restrictions caused rice price increases in both high-income and developing countries to be only one-quarter to one-third less than what they otherwise would have been.
The policy conclusion is this: in our
globalizing world, attempts to insulate domestic consumers from international food price spikes are mostly futile. Those actions hurt all food-importing countries by increasing the price of their imports. Stronger World Trade Organization dis- ciplines on both exports and imports are clearly needed to limit how much damage such beggar-thy-neighbor government responses can do in the global market- place when food prices spike.
approach, other observers propose preventing export bans to avoid any disruption of supplies.14 Larger food reserves and better-managed
grain stocks. Proposals have been put forth for physical reserves, including emergency reserves,15 international coordinated grain reserves,16 regional reserves, and country-level reserves. An emergency reserve is a modest stock of
about 300,000–500,000 metric tons of basic grains—about 5 percent of current global food aid flows—which would be supplied by the main grain-producing countries and funded by a group of more than a dozen countries. Tis reserve, to be used exclusively for emergency response and
humanitarian assistance, could be managed by the World Food Programme. In 2011, in response to this proposal, the G20 proposed studying the feasi- bility of a global humanitarian emergency reserve through a pilot program in West Africa under the leadership of the Economic Community of West African States and with the support of the World Food Programme. Global or regional reserves will require a trigger
mechanism that determines when to release stocks to calm markets in times of stress, and it is essen- tial that such a mechanism be transparent. Te proposed early warning system for price volatility, mentioned earlier, could be a solution.
FOOD PRICES 21
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