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Agricultural markets and risks - management of the latter, not the former

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  • Varangis, Panos
  • Larson, Donald
  • Anderson, Jack R.

Abstract

The authors review the historical relationship between the work of applied economists, and policymakers, and the institutions that came to characterize the commodity, and risk markets of the 1980s. These institutions were a response to the harmful consequences of commodity market volatility, and declining terms of trade. But the chosen policies, and instruments relied on market interventions, to directly affect prices, or the distribution of prices in domestic, and international markets. For practical, and more fundamental reasons, this approach failed. The authors next discuss how a growing body of work, contributed to a change in thinking that moved policy away from stabilization goals, toward policies that emphasized the management of risks. They distinguish between the macroeconomic effects of volatile commodity markets, and the consequences for businesses, and households. The authors argue that both sets of problems remain important development issues, but that appropriate policy instruments are largely separate. Nonetheless, because governments, households, and firms must all respond to a wide range of sources of risk, they emphasize the role for an integrated policy by government. Increasingly, alternative approaches have come to rely on market-based instruments. Such approaches accept the market view of relative prices as immutable, but address directly the negative consequences of volatility. As traditional risk markets (such as futures and insurance markets) expand, and new parametric markets emerge, the practicality of applying market-based instruments to traditional risk, and development problems increases. The authors show the change in approaches to risk, and the reliance on old, and new market instruments, with new, and sometimes experimental programs, with special emphasis on programs at the World Bank.

Suggested Citation

  • Varangis, Panos & Larson, Donald & Anderson, Jack R., 2002. "Agricultural markets and risks - management of the latter, not the former," Policy Research Working Paper Series 2793, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2793
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    Citations

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    Cited by:

    1. World Bank, 2002. "Nicaragua : Promoting Competitiveness and Stimulating Broad-based Growth in Agriculture," World Bank Other Operational Studies 15324, The World Bank.
    2. Sushil Mohan, 2007. "Market-based Price-risk Management for Coffee Producers," Development Policy Review, Overseas Development Institute, vol. 25(3), pages 333-354, May.
    3. 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.
    4. Wyn Morgan & Nicholas Snowden, 2007. "Comparative Advantage and the Gains from Financial Trade: A Reappraisal," The World Economy, Wiley Blackwell, vol. 30(2), pages 342-362, February.
    5. World Bank, 2003. "Agriculture in Nicaragua : Promoting Competitiveness and Stimulating Broad-Based Growth," World Bank Publications, The World Bank, number 15126, 12-2019.
    6. World Bank, 2004. "Drivers of Sustainable Rural Growth and Poverty Reduction in Central America : Nicaragua Case Study, Volume 1. Executive Summary and Main Text," World Bank Other Operational Studies 14554, The World Bank.
    7. Gautam, Madhur, 2006. "Managing Drought in Sub-Saharan Africa: Policy Perspectives," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25608, International Association of Agricultural Economists.
    8. Strydom, D.B. & Grove, Bennie & Kruger, Y. & Willemse, B.J., 2010. "Stochastic Efficiency Analysis Of Alternative Basic Maize Marketing Strategies," 2010 AAAE Third Conference/AEASA 48th Conference, September 19-23, 2010, Cape Town, South Africa 96812, African Association of Agricultural Economists (AAAE).
    9. Heidelbach, Olaf, 2007. "Efficiency of selected risk management instruments: An empirical analysis of risk reduction in Kazakhstani crop production," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 40, number 92323.
    10. Sushil Mohan & Bill Russell, 2008. "Modelling Thirty Five Years Of Coffee Prices In Brazil, Guatemala And India," Dundee Discussion Papers in Economics 221, Economic Studies, University of Dundee.
    11. Siegel, Paul B., 2005. "Using an asset-based approach to identify drivers of sustainable rural growth and poverty reduction in Central America : a conceptual framework," Policy Research Working Paper Series 3475, The World Bank.
    12. World Bank, 2003. "Rural Financial Services : Implementing the Bank's Strategy to Reach the Rural Poor," World Bank Other Operational Studies 14677, The World Bank.
    13. Varangis, Panos & Siegel, Paul & Giovannucci, Daniele & Lewin, Bryan, 2003. "Dealing with the coffee crisis in Central America - impacts and strategies," Policy Research Working Paper Series 2993, The World Bank.
    14. Akiyama, Takamasa & Baffes, John & Larson, Donald F. & Varangis, Panos, 2003. "Commodity market reform in Africa: some recent experience," Economic Systems, Elsevier, vol. 27(1), pages 83-115, March.
    15. World Bank, 2005. "Income Generation and Social Protection for the Poor," World Bank Other Operational Studies 8815, The World Bank.
    16. Sarris, Alexander, 2002. "The demand for commodity insurance by developing country agricultural producers - theory and an application to cocoa in Ghana," Policy Research Working Paper Series 2887, The World Bank.
    17. M.M. Venter & D.B. Strydom & B. Grové, 2013. "Stochastic efficiency analysis of alternative basic grain marketing strategies," Agrekon, Taylor & Francis Journals, vol. 52(sup1), pages 46-63, March.

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