Publication: Food Price Volatility and Domestic Stabilization Policies in Developing Countries
Date
2013-03
ISSN
Published
2013-03
Author(s)
Gouel, Christophe
Abstract
When food prices spike in countries with
large numbers of poor people, public intervention is
essential to alleviate hunger and malnutrition. For
governments, this is also a case of political survival.
Government actions often take the form of direct
interventions in the market to stabilize food prices, which
goes against most international advice to rely on safety
nets and world trade. Despite the limitations of food price
stabilization policies, they are widespread in developing
countries. This paper attempts to untangle the elements of
this policy conundrum. Price stabilization policies arise as
a result of international and domestic coordination
problems. At the individual country level, it is in the
national interest of many countries to adjust trade policies
to take ad-vantage of the world market in order to achieve
domestic price stability. When countercyclical trade
policies become widespread, the result is a thinner and less
reliable world market, which further decreases the appeal of
laissez-faire. A similar vicious circle operates in the
domestic market: without effective policies to protect the
poor, such as safety nets, food market liberalization lacks
credibility and makes private actors reluctant to intervene,
which in turn forces government to step in. The current
policy challenge lies in designing policies that will build
trust in world markets and increase trust between pub-lic
and private agents.
Citation
“Gouel, Christophe. 2013. Food Price Volatility and Domestic Stabilization Policies in Developing Countries. Policy Research Working Paper;No. 6393. © World Bank, Washington, DC. http://openknowledge.worldbank.org/entities/publication/1c67d6a9-d952-5ff1-94ee-bc05bdf28acc License: CC BY 3.0 IGO.”
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