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Trading-off Volatility and Distortions? Food Policy During Price Spikes

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  • Hannah Pieters
  • Johan Swinnen

Abstract

This paper addresses to what extent governments have traded off price distortions for reduced volatility in intervening in agricultural and food markets during the recent food price spikes. We develop a model to derive how much distortions a government would introduce when it cares about stability in a situation with limited policy options. We show a trade-off and identify the optimal combination of distortions and stability for given international price shocks and interest groups preferences for stability. Empirical evidence shows that several countries have been able to reduce (short run) price volatility in the domestic markets while at the same time allowing structural (medium and long term) price changes to pass through to producers and consumers. However, this is not the general case. For many countries, even when explicitly taking into account the trade-off (and the benefits of reducing volatility) government policies appear far removed from the optimal trade-off and there appears to be much room for policy improvement.

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  • Hannah Pieters & Johan Swinnen, 2014. "Trading-off Volatility and Distortions? Food Policy During Price Spikes," LICOS Discussion Papers 35914, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    • Handle: RePEc:lic:licosd:35914
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    3. Derrill D. Watson, 2017. "The political economy of food price policy during the global food price crisis of 2006-2008," Food Security: The Science, Sociology and Economics of Food Production and Access to Food, Springer;The International Society for Plant Pathology, vol. 9(3), pages 497-509, June.
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    7. Muflikh, Y.N. & Smith, C. & Brown, C. & Aziz, A.A., 2021. "Analysing price volatility in agricultural value chains using systems thinking: A case study of the Indonesian chilli value chain," Agricultural Systems, Elsevier, vol. 192(C).
    8. Jean-Christophe Bureau & Jo Swinnen, 2017. "EU policies and global food security," Working Papers of Department of Economics, Leuven 578549, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    9. Umar Muhammad Gummi & Yang Rong & Utiya Bello & Abdulhamid Sillah Umar & Asiya Mu'azu, 2021. "On the Analysis of Food and Oil Markets in Nigeria: What Prices Tell Us from Asymmetric and Partial Structural Change Modeling?," International Journal of Energy Economics and Policy, Econjournals, vol. 11(1), pages 52-64.
    10. Briones Alonso, Elena & Swinnen, Johan, 2016. "Who are the producers and consumers? Value chains and food policy effects in the wheat sector in Pakistan," Food Policy, Elsevier, vol. 61(C), pages 40-58.
    11. Alpmann, Jan & Bitsch, Vera, 2017. "Dynamics of asymmetric conflict: The case of the German Milk Conflict," Food Policy, Elsevier, vol. 66(C), pages 62-72.
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    14. Ding Chen & Umar Muhammad Gummi & Shan-Bing Lu & Asiya Mu'azu, 2020. "Modelling the impact of oil price fluctuations on food price in high and low-income oil exporting countries," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 66(10), pages 458-468.
    15. Mittal, S & Hariharan, VK & Subash, SP, 2018. "Price volatility trends and price transmission for major staples in India," Agricultural Economics Research Review, Agricultural Economics Research Association (India), vol. 31(1).
    16. Elena Briones Alonso & Jo Swinnen, 2015. "A value chain approach to measuring distortions to incentives and food policy effects (with application to Pakistan’s grain policy)," Working Papers of LICOS - Centre for Institutions and Economic Performance 493428, KU Leuven, Faculty of Economics and Business (FEB), LICOS - Centre for Institutions and Economic Performance.
    17. Hirsch, Stefan & Koppenberg, Maximilian, 2023. "Market power and profitability of organic versus conventional dairy farmers in the EU," 2023 Annual Meeting, July 23-25, Washington D.C. 335708, Agricultural and Applied Economics Association.
    18. Qiao, Sen & Chen, Hsing Hung & Zhang, Rong Rong, 2021. "Examining the impact of factor price distortions and social welfare on innovation efficiency from the microdata of Chinese renewable energy industry," Renewable and Sustainable Energy Reviews, Elsevier, vol. 143(C).
    19. Xiangjun Wu & Juan Xu, 2021. "Drivers of food price in China: A heterogeneous panel SVAR approach," Agricultural Economics, International Association of Agricultural Economists, vol. 52(1), pages 67-79, January.

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