Food price spikes and poor, small economies: What role for trade policies?

Abstract

Upward spikes in international food prices lead some food-surplus countries to raise export barriers and some food-deficit countries to lower their import restrictions on staple foods - and conversely when prices slump. When many countries so respond, their actions in aggregate exacerbate the international price spike, making adjustment even more difficult for other countries. This paper reviews conceptually, and then empirically for a sample of small and poor economies, the role of trade measures for achieving the social objective of assisting those hurt by sharp changes in food prices. The data are monthly for the period of 2006 to 2012, and annually since 1990. The paper concludes by exploring the efficacy of using trade policy instruments versus domestic measures to reduce the risk of welfare losses for vulnerable households, and stresses the importance for small and poor economies of supporting multilateral efforts to outlaw beggar-thy-neighbour policy responses to food price spikes.