In a context of hyper-volatility in agricultural prices and the structural instability of markets, how can different world regions, especially developing countries, escape the new food and financial crises?
We recommend reading Frank Galtier’s book, an economist and researcher at CIRAD-UMR MOISA, of which we have published an extract here1
. This critical analysis of the strategies and the tools for agricultural strategies highlights the impact of price volatility in developing countries and offers practical solutions to help these countries to manage food price instability. In this excerpt, Franck Galtier reminds us of the international community’s vital role around several strategic objectives: the establishment of safety nets, the creation of funds for price stabilization policies in developing countries, help for “fragile” importing countries in paying their food bill and the “rebalancing” of WTO regulations.
Momagri is delighted by the publication of this book, which stresses the importance of the combat against food volatility and insecurity, and which encourages global governance based on the regulation of agricultural markets as essential to development.
momagri Editorial Board
Helping developing countries manage food price instability
This aid has two components: support for developing countries who want to establish mechanisms to manage food price instability and support for countries that have difficulties paying for their imports. This aid can be bilateral or multilateral.
Helping developing countries establish effective mechanisms to manage the volatility of food prices. This can be achieved through technical assistance, the training of experts and with financial support. Technical assistance is often necessary for the development of these mechanisms. It is also essential to train experts who will be in charge of the establishment, operation and monitoring of the mechanisms.
Financial support is also necessary. The effective implementation of the mechanisms could be difficult for many developing countries given their limited budget. This is particularly the case for the political modernization of production and markets and for safety nets, especially multi-year safety nets that aim at recapitalizing vulnerable households to increase their resilience.
Policies for stabilizing prices are less costly, but still out of reach for many developing countries. Outside help is often necessary, without which the intervention measures may be underdeveloped (so ineffective) or intermittent (so not reassuring for private operators). With regards price stabilization policies, the creation of a competitive international fund would seem appropriate. There are two reasons for this.
The first is the risk that mismanaged stabilization policies do not generate a crowding-out effect on stocks and imports by private operators, thus contributing to the increase in price volatility rather than reducing it. The second is the hesitancy of donors to fund policies that have been disapproved for the past 25 years by the dominant ideology. The creation of a competitive fund may solve these two problems.
The introduction of conditions and the implementation of competitive projects would ensure the good governance of these policies (especially concerning the transparency and compliance with intervention prices). This fund would also generate experience and lessons for developing countries and the donor community. In this way, the perception of the other on the benefits and limitations of stabilization policies would be based on empirical evidence and not on preconceived ideas.
This means that the fund could begin with quite modest amounts, the idea being to first of all fund a few pilot projects.
Assisting “fragile” importing countries in paying their food bill. International price volatility or production instability in developing countries can lead to sharp increases in food costs in importing countries.
For some countries, this may result in a decrease in the exchange rate or, worse, the rationing of food imports. In these situations, outside help is needed. This assistance may take the form of food aid, but also credit facilities or financial and technical support to facilitate the use of hedging instruments by governments (weather insurance, futures or options). For some low-income countries, it could also take the form of a mechanism for stabilizing public expenditure on imports of food (based on experience STABEX).
Yet, the measures that countries are allowed to implement for stabilizing prices on the domestic market are restricted by the WTO. This is why the international community can help developing countries by reconsidering WTO regulations in light of their impact on price volatility and food security.
1 Franck GALTIER (Cirad), avec la collaboration de Bruno VINDEL (AFD), « Gérer l’instabilité des prix alimentaires dans les pays en développement », A savoir, n° 17 décembre 2012. The book (in French) is available on this link http://www.afd.fr/webdav/site/afd/shared/PUBLICATIONS/RECHERCHE/Scientifiques/A-savoir/17-A-Savoir.pdf