Transmission of Global Food Prices to Domestic Prices in Developing Countries
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Transmission of international food
prices to domestic prices is essential to pursue
comparative-advantage-based, sustainable agricultural
production, and to ensure domestic production responds to
global food scarcity or surplus. (i) International prices
are opportunity costs for most price-taking developing
countries and are crucial in determining an efficient
distribution of domestic resources. When the long-term trend
of international prices is transmitted slowly and
imperfectly to domestic markets, consumers and producers
make decisions based on prices that do not represent their
real social costs and benefits. There is strong empirical
evidence from both developing and developed countries that
any large, sustained deviation of domestic prices from world
prices in either direction leads to substantially
sub-optimal outcomes and slows the rate of economic growth;
and (ii) as international food prices reflect global
scarcity or surplus, their transmission to domestic prices
can help improved the global responsiveness of the food
system to shocks. The recent increase in the volatility of
international food prices is, therefore, a big concern.
These volatile and unpredictable prices may undermine
incentives for farmers to respond to high price levels with
the critical increase in production needed to bring food
prices down. In practical terms, farmers decide what to
plant and countries deciding when to import face uncertainty
in the likely distribution of world food prices and greater
consequences when using past price levels and distributions
to guide current decisions. This uncertainty keeps food
prices high for a longer period, leading to fundamental food
security risks for consumers and governments. To achieve
more efficient domestic price formation, policy actions need
to focus on (i) strengthening the integration of local
markets with international markets (through investments in
infrastructure and market-oriented policies), especially
local markets that are more volatile than international
markets, (ii) reducing global food price volatility,
including through more discipline on trade policy, and (iii)
strengthening safety nets to rapidly and cost-effectively
protect the poor and vulnerable from the food price spikes.
Palabras clave
ACCESS TO MARKETS, AGRICULTURAL ECONOMICS, AGRICULTURAL POLICIES, AGRICULTURAL PRODUCTION, AGRICULTURE, ARBITRAGE, CEREAL PRICE, CEREAL PRICES, CEREALS, CLOSED ECONOMY, COMMODITIES, COMMODITY, COMMODITY PRICE, CONNECTIVITY, CONSUMER PRICES, COOKING, DEVELOPING COUNTRIES, DOMESTIC COMPETITION, DOMESTIC ECONOMIES, DOMESTIC MARKET, DOMESTIC MARKETS, DOMESTIC PRICE, DOMESTIC PRICES, FOOD CONSUMPTION, FOOD PRICE, FOOD PRICES, FOOD RESERVES, FOOD SECURITY, FOOD SUBSIDIES, FOOD SUPPLY, FOOD TRANSFERS, GLOBAL MARKETS, GOVERNMENT CONTRACTS, IFPRI, INCOME, INTERNATIONAL MARKET, INTERNATIONAL MARKETS, INTERNATIONAL TRADE, LOCAL CURRENCY, MAIZE, MARKET INFRASTRUCTURE, MARKET INTEGRATION, MARKET PRICE, MARKET PRICES, MARKET SHARE, MARKET STRUCTURE, MARKETING, OIL PRODUCTS, OPEN ECONOMIES, PRICE BAND, PRICE CHANGE, PRICE CHANGES, PRICE LEVELS, PRICE MOVEMENT, PRICE MOVEMENTS, PRICE SERIES, PRICE SUPPORT, PRICE TREND, PRICE VOLATILITY, PRIVATE SECTOR, RESULT, RESULTS, SAFETY NETS, SECURITY RISKS, SOCIAL COSTS, SOCIAL PROTECTION, SUBSTITUTE, SUBSTITUTION, SURPLUS, SUSTAINABLE GROWTH, TRANSMISSION, VOLATILITY, WHEAT, WORLD MARKET