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Rethinking the global food crisis: The role of trade shocks

  • Headey, Derek

Although fundamental factors were clearly responsible for shifting the world to a higher food price equilibrium in the years leading up the 2008 food crisis, there is little doubt that when food prices peaked in June of 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 (US) 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 Thailand (the largest exporter of rice), and the United States (the largest exporter of wheat and maize and the third largest exporter of soybeans). In all cases except soybeans, we find that large surges in export volumes preceded the price surges. The presence of these large demand surges, together with back-of-the-envelope estimates of their price impacts, suggests that trade events played a much larger and more pervasive role than previously thought.

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Article provided by Elsevier in its journal Food Policy.

Volume (Year): 36 (2011)
Issue (Month): 2 (April)
Pages: 136-146

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Handle: RePEc:eee:jfpoli:v:36:y:2011:i:2:p:136-146
Contact details of provider: Web page: http://www.elsevier.com/locate/foodpol

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  1. Mitchell, Donald, 2008. "A note on rising food prices," Policy Research Working Paper Series 4682, The World Bank.
  2. Headey, Derek & Fan, Shenggen, 2010. "Reflections on the global food crisis: How did it happen? How has it hurt? And how can we prevent the next one?," Research reports 165, International Food Policy Research Institute (IFPRI).
  3. Piesse, Jenifer & Thirtle, Colin, 2009. "Three bubbles and a panic: An explanatory review of recent food commodity price events," Food Policy, Elsevier, vol. 34(2), pages 119-129, April.
  4. Cooke, Bryce & Robles, Miguel, 2009. "Recent food prices movements: A time series analysis," IFPRI discussion papers 942, International Food Policy Research Institute (IFPRI).
  5. Christopher L. Gilbert, 2010. "How to Understand High Food Prices," Journal of Agricultural Economics, Wiley Blackwell, vol. 61(2), pages 398-425.
  6. Abbott, Philip C. & Hurt, Christopher & Tyner, Wallace E., 2008. "What's Driving Food Prices?," Issue Reports 37951, Farm Foundation.
  7. Headey, Derek & Fan, Shenggen, 2008. "Anatomy of a crisis: The causes and consequences of surging food prices," IFPRI discussion papers 831, International Food Policy Research Institute (IFPRI).
  8. Irwin, Scott H. & Sanders, Dwight R. & Merrin, Robert P., 2009. "Devil or Angel? The Role of Speculation in the Recent Commodity Price Boom (and Bust)," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 41(02), August.
  9. Erdal Atukeren, 2008. "Christmas cards, Easter bunnies, and Granger-causality," Quality & Quantity: International Journal of Methodology, Springer, vol. 42(6), pages 835-844, December.
  10. Keith O. Fuglie, 2008. "Is a slowdown in agricultural productivity growth contributing to the rise in commodity prices?," Agricultural Economics, International Association of Agricultural Economists, vol. 39(s1), pages 431-441, November.
  11. C. Peter Timmer, 2009. "Did Speculation Affect World Rice Prices?," Working Papers 09-07, Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA).
  12. Timmer, C. Peter, 2010. "Reflections on food crises past," Food Policy, Elsevier, vol. 35(1), pages 1-11, February.
  13. Paul Dorosh, 2009. "Price stabilization, international trade and national cereal stocks: world price shocks and policy response in South Asia," The Science, Sociology and Economics of Food Production and Access to Food, Springer, vol. 1(2), pages 137-149, June.
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