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International grain reserves and other instruments to address volatility in grain markets

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  • Wright, Brian

Abstract

In the long view, recent grain price volatility is not anomalous. Wheat, rice, and maize are highly substitutable in the global market for calories, and when aggregate stocks decline to minimal feasible levels, prices become highly sensitive to small shocks, consistent with storage models. In this decade, stocks have declined due to high income growth and biofuels mandates. Recently, shocks including the Australian drought and biofuels demand boosts due to the oil price spike were exacerbated by a sequence of trade restrictions by key exporters beginning in the thin global rice market in the fall of 2007, which turned market anxiety into panic. To protect vulnerable consumers, countries intervened in storage markets and, if they were exporters, to limit trade access. Recognizing these realities, vulnerable countries are building strategic reserves. The associated expense and negative incentive effects can be controlled if reserves have quantitative targets related to the consumption needs of the most vulnerable, with distribution to the latter only in severe emergencies. More-ambitious plans manipulate world prices via buffer stocks or naked short speculation to keep prices consistent with fundamentals. Past interventions of either kind have been expensive, ineffective, and generally short-lived. Further, there is no significant evidence that prices do not reflect fundamentals, including export market access.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5028.

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Date of creation: 01 Aug 2009
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Handle: RePEc:wbk:wbrwps:5028

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Keywords: Markets and Market Access; Access to Markets; Emerging Markets; Debt Markets; Economic Theory&Research;

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Citations

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Cited by:
  1. Baffes, John & Dennis, Allen, 2013. "Long-term drivers of food prices," Policy Research Working Paper Series 6455, The World Bank.
  2. Lehecka, Georg, 2013. "Have food and financial markets integrated? An empirical assessment on aggregate data," 53rd Annual Conference, Berlin, Germany, September 25-27, 2013 156108, German Association of Agricultural Economists (GEWISOLA).
  3. Galtier, F., 2009. "How to Manage Food Price Instability in Developing Countries ?," Working Papers MOISA 200905, UMR MOISA : Marchés, Organisations, Institutions et Stratégies d'Acteurs : CIHEAM-IAMM, CIRAD, INRA, Montpellier SupAgro, IRD - Montpellier, France.
  4. Gabrielyan, Gnel & Marsh, Thomas L., 2012. "Domestic and Export Price Formation of U.S. Hops," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124722, Agricultural and Applied Economics Association.
  5. Janvry, Alain De & Sadoulet, Elisabeth, 2010. "Agriculture for development in sub-Saharan Africa: An update," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 5(1), September.
  6. de Janvry, Alain, 2009. "Agriculture for development: New paradigm and options for success," 2009 Conference, August 16-22, 2009, Beijing, China 53202, International Association of Agricultural Economists.
  7. Dethier, Jean-Jacques & Effenberger, Alexandra, 2011. "Agriculture and development : a brief review of the literature," Policy Research Working Paper Series 5553, The World Bank.
  8. Galtier, F., 2009. "Comment gérer l'instabilité des prix alimentaires dans les pays en développement ?," Working Papers MOISA 200904, UMR MOISA : Marchés, Organisations, Institutions et Stratégies d'Acteurs : CIHEAM-IAMM, CIRAD, INRA, Montpellier SupAgro, IRD - Montpellier, France.
  9. Femenia, Fabienne, 2012. "Should private storage be subsidized to stabilize agricultural markets after price support schemes are removed?:," IFPRI discussion papers 1205, International Food Policy Research Institute (IFPRI).
  10. World Bank, 2012. "Using Public Food Grain Stocks to Enhance Food Security," World Bank Other Operational Studies 11878, The World Bank.

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