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How to Manage Food Price Instability in Developing Countries ?

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  • Galtier, F.

Abstract

The food crisis of 2007-2008 and the resulting urban riots observed in about forty developing countries placed the question of price instability at the very heart of the debate. The paper states that, since the 80s, the prevailing idea is that the best option is to manage risks without "affecting prices" by means of private risk management instruments (crop insurance, future markets...) in conjunction with the provision of safety nets for vulnerable populations. Indeed, the stabilisation of agricultural prices is thought to be not desirable because i) it prevents prices from playing their role of a signal guiding production and trade behaviour and ii) by dissociating price movements from production variation, it prevents producers from taking advantage of the "natural insurance" resulting from the negative correlation between prices and harvest volumes. Nevertheless, this strategy had difficulty in standing up to the facts: the development of private risk-management instruments did not come to fruition and the safety nets did not succeed in preventing the deterioration of the nutritional situation of vulnerable households. The paper shows that the arguments against price stabilisation (the informational role of prices and the "natural insurance" of producers) do not hold when the different causes of price instability are taken into account. It also proposes a typology of the causes of instability. Instability may be "natural", as a result of natural hazards affecting production (rain, locusts...). However, it may also be "imported from international markets or "endogenous", in other words generated by the markets themselves (speculative bubbles, cobweb phenomena, etc). Lastly, the paper shows that the causes of instability are a crucial factor in the performance of price stabilisation strategies and instruments. It therefore presents the relevant stabilisation policies for each cause of instability. ...French Abstract : La crise alimentaire de 2007-2008 et les émeutes urbaines qu'elle a engendrées dans une quarantaine de PED ont conduit à mettre la question de l'instabilité des prix alimentaires au coeur des débats. L'article rappelle que, depuis les années 80, l'idée domine que la meilleure option consiste à gérer les risques sans " toucher aux prix " grâce à des instruments privés (assurance récolte, marchés à terme...) complétés par des filets de sécurité pour les populations vulnérables. En effet, la stabilisation des prix agricoles est considérée comme non souhaitable car d'une part elle empêche les prix de jouer leur rôle de signal guidant les comportements de production et d'échange et d'autre part, en déconnectant l'évolution des prix de celle de la production, elle empêche les producteurs de bénéficier de " l'assurance naturelle " procurée par la corrélation négative entre prix et niveau des récoltes. Cependant, cette stratégie a mal supporté l'épreuve des faits : le développement des instruments privés de gestion des risques ne s'est pas produit et les filets de sécurité ne sont pas parvenus à enrayer la dégradation de la situation nutritionnelle des ménages vulnérables. L'article montre que les arguments à l'encontre de la stabilisation des prix (le rôle informationnel des prix et " l'assurance naturelle " des producteurs) ne tiennent pas si on prend en compte la diversité des causes de l'instabilité des prix. Il propose en outre une typologie des causes de l'instabilité. Outre l'instabilité d'origine "naturelle" (due aux aléas naturels affectant la production comme la pluie ou les attaques de criquets), l'instabilité des prix peut en effet être "importée" des marchés internationaux ou être " endogène ", c'est-à-dire être générée par le fonctionnement des marchés eux mêmes (bulles spéculatives, phénomènes de cobweb...). Enfin, l'article montre que la performance des stratégies et instruments de stabilisation des prix dépend de manière cruciale des causes de l'instabilité. Il présente les politiques de stabilisation adaptée à chacune des causes d'instabilité.

Suggested Citation

  • 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 - Montpellier, France.
  • Handle: RePEc:umr:wpaper:200905
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Tharcisse NKUNZIMANA & François Kayitakire, 2013. "Measuring food price volatility and transmission in West Africa: How important are magnitudes of transmission across cereals and countries?," EcoMod2013 5219, EcoMod.
    2. Thomas Barré, 2011. "Price expectations and price dynamics: the case of the rice sector in developing Asia," Working Papers hal-00630711, HAL.
    3. Thomas Barré, 2011. "Price expectations and price dynamics: the case of the rice sector in developing Asia," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00630711, HAL.
    4. Nkendah, Robert, 2013. "Estimating the informal cross-border trade of agricultural and horticultural commodities between cameroon and its CEMAC neighbours," Food Policy, Elsevier, vol. 41(C), pages 133-144.
    5. Christophe Gouel, 2014. "Food Price Volatility and Domestic Stabilization Policies in Developing Countries," NBER Chapters,in: The Economics of Food Price Volatility, pages 261-306 National Bureau of Economic Research, Inc.
    6. repec:bla:jageco:v:68:y:2017:i:1:p:143-163 is not listed on IDEAS
    7. Pop Larisa Nicoleta, 2015. "Assessing The Governance For Commodity Price Stabilization - A Retrospective Look," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 504-513, July.

    More about this item

    Keywords

    PRICE INSTABILITY; RISK MANAGEMENT; PRICE STABILISATION; FOOD SECURITY; GREEN REVOLUTION; MARKETS MODERNISATION;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy

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