Speaker
Description
The importance of a reliable agricultural trade system becomes especially apparent in times of crisis. Trade on well-integrated international markets can help to buffer shocks such as those experienced in 2007/08 and more recently following Russia’s invasion of Ukraine. However, past research has suggested that international markets for important agricultural staples are less than perfectly integrated, and that governments respond to international price surges by implementing measures such as export restrictions or changes in tariffs that insulate their domestic markets from international price surges.
Increasing insulation may appear to be a rational response to individual governments as they aim to protect domestic consumers from food price inflation. However, by reducing the buffering capacity of international markets these responses can create a collective action problem, fuelling a vicious circle of further increases in international prices, additional trade policy responses and, ultimately, increased food insecurity, especially in low-income importing countries (MARTIN and ANDERSON, 2011). Hence, it is important to understand whether insulation does indeed increase when international prices surge, and if so, what is causing this increase. The objective of this study is to generate empirical evidence on these questions.
The analysis is based on a total of 503 monthly domestic price series for wheat (n_w=56), yellow maize (n_ym=78), white maize (n_wm=152) and rice (n_r=217) obtained from the FAO’s Global Information and Early Warning System (GIEWS FAO, 2023) and the Famine Early Warning Systems Network (FEWS NET, 2023). Depending on availability we use price series beginning as early as January 2004 and no later than January 2014, and ending in June 2023 to cover the 2007/2008 food price crisis and price surge triggered by Russia’s invasion of Ukraine. As international prices
Our empirical approach uses these data to estimate the basic long-run relationship:
Interestingly, we do not find evidence that border measures are being adjusted to generate the increased insulation that we observe during price surges. Analysis with data on trade policy changes from the Global Trade Alert data base and annual tariff data from UNCTAD-TRAINS does not reveal any temporal correlation between the increases in insulation that we observe and changes in trade policy measures such as tariffs. This suggests that countries are using other, non-border measures such price controls or the release of public stocks to insulate domestic prices.
Keywords
Price transmission, food prices, trade policy, food security
FEWS NET (2023): Staple Food Price Data Famine Early Warning Systems Network. In: https://fews.net/staple-food-price-data.
GIEWS FAO (2023): Food Price Monitoring and Analysis Tool V4. In: https://fpma.fao.org/giews/fpmat4/#/dashboard/home.
MARTIN, W. and N. MINOT (2022): The impacts of price insulation on world wheat markets during the 2022 food price crisis. In: Australian Journal of Agricultural and Resource Economics 66 (4): 753–774.
MARTIN, W. J. and K. ANDERSON (2011): Export Restrictions and Price Insulation During Commodity Price Booms. World Bank Policy Research Working Paper No. 5645.
SAIKKONEN, P. and I. CHOI (2004): Cointegrating smooth transition regressions. In: Econometric Theory 20 (02).