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Rethinking the global food crisis

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  • Headey, Derek D.

Abstract

From 2003 to their peak in mid 2008, the nominal prices of maize and wheat roughly doubled, while those of rice tripled in a matter of months rather than years. Although fundamental factors were clearly responsible for shifting the world to a higher equilibrium price during this time, there is little doubt that when food prices peaked in June 2008, they soared well above the new equilibrium price. Numerous arguments have been proposed to explain overshooting, including financial speculation, depreciation of the United States (U.S.) dollar, low interest rates, and reductions in grain stocks. However, observations that international rice prices surged in response to export restrictions by India and Vietnam suggested that trade-related factors could be an important basis for overshooting, especially given the very tangible link between export volumes and export prices. In this paper, we revisit the trade story by closely examining monthly data from the largest export markets for rice (Thailand), wheat, maize and soybeans (the United States). In each case, we find that large surges in export volumes preceded the price surges. The presence of these demand surges, together with back-of-the-envelope estimates of their price impacts, suggest that trade events played a much larger and more pervasive role than previously thought. This further implies that improving the international grain markets should be a central focus of the international policy agenda going forward.

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Bibliographic Info

Paper provided by International Food Policy Research Institute (IFPRI) in its series IFPRI discussion papers with number 958.

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Date of creation: 2010
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Handle: RePEc:fpr:ifprid:958

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Related research

Keywords: equilibrium price; export markets; export prices; export restrictions; export volumes; international grain trade; panic purchases; world food crisis;

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Cited by:
  1. Rutten, Martine & Meijerink, Gerdien W. & Chant, Lindsay, 2011. "Sit down at the ballgame: How trade barriers make the world less food secure," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114653, European Association of Agricultural Economists.
  2. Headey, Derek, 2011. "Was the Global Food Crisis Really a Crisis?: Simulations versus Self-Reporting," Research briefs 17, International Food Policy Research Institute (IFPRI).
  3. Michele Ruta & Anthony J. Venables, 2012. "International Trade in Natural Resources: Practice and Policy," CESifo Working Paper Series 3778, CESifo Group Munich.
  4. Baiphethi, Mompati N. & Viljoen, Machiel F. & Kundhlande, Godfrey & Ralehlolo, N.G., 2010. "Enhancing food and livelihood security in the context of the food and financial crisis: challenges and opportunities for small scale rainwater harvesting and conservation," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa 96640, African Association of Agricultural Economists (AAAE);Agricultural Economics Association of South Africa (AEASA).
  5. Antoine Bouët & David Laborde Debucquet, 2012. "Food crisis and export taxation: the cost of non-cooperative trade policies," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 148(1), pages 209-233, April.
  6. Bischoff, Johanna, 2010. "Spekulation mit Nahrungsmittelprodukten als Ursache für Welternährungskrisen: Untersuchung am Beispiel des Reismarktes
    [Speculation with food products as a reason for global food crises: Analysis
    ," MPRA Paper 38023, University Library of Munich, Germany.

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