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Trading-off volatility and distortions? Food policy during price spikes

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  • Pieters, Hannah
  • Swinnen, Johan

Abstract

This paper analyses the trade-off between price distortions and reduced volatility when governments intervened 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 price stability in a situation with limited policy options. We show that there is a trade-off and identify the optimal combination of distortions and stability for given international price shocks and interest groups preferences for stability. We compare these theoretical findings with empirical indicators on actual government interventions in staple food markets. We find 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.

Suggested Citation

  • Pieters, Hannah & Swinnen, Johan, 2016. "Trading-off volatility and distortions? Food policy during price spikes," Food Policy, Elsevier, vol. 61(C), pages 27-39.
  • Handle: RePEc:eee:jfpoli:v:61:y:2016:i:c:p:27-39
    DOI: 10.1016/j.foodpol.2016.01.004
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    Cited by:

    1. 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 LICOS Centre for Institutions and Economic Performance 493428, KU Leuven, Faculty of Economics and Business, LICOS Centre for Institutions and Economic Performance.
    2. repec:spr:ssefpa:v:9:y:2017:i:3:d:10.1007_s12571-017-0685-z is not listed on IDEAS
    3. Jean-Christophe Bureau & Thorsten Rogall, 2017. "EU Policies and Global Food Security," LICOS Discussion Papers 39217, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    4. 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.
    5. 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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