Food Price Volatility: Political Causes, Effects on Hunger and Poverty, Sustainable Solutions

What are the effects of different types of trade policy measures on global food price volatility and what local, alternative measures can be adopted to foster food security in volatile global markets?

Project Summary

Poverty and hunger with their complex and interconnected root causes remain at the heart of the new Sustainable Development Agenda 2030, and limiting food price volatility is one of the central targets in the Sustainable Development Goals. Advancing the understanding of the causes and effects of food price volatility has as much relevance among policy makers as in the scientific community. As yet, the causal mechanisms linking global food price volatility and local food insecurity lack theoretical foundation and remain understudied. It is further unknown how different types of trade policy measures, which are a frequent political response to food shortages, affect global food price volatility, and it remains to be tested whether improved on-farm storage may be an alternative decentralized option to reduce price volatility where it matters most – at the local level in developing countries. The project therefore aims to:

  • Identify the causal effects of trade policy measures on global food price volatility,
  • Examine how global food price volatility affects local food security through transmission of global market prices to local prices, conditional on harvest seasons, and to
  • Understand the effects of improved on-farm storage on price volatility on local markets as a basis for alternative, decentralised measures to foster local food security.

The consortium behind the project is multidisciplinary, involving scientists with disciplinary backgrounds in economics, law, political science, and geography. The highly international composition of the research team involves university institutes in Switzerland and Vietnam, two major Swiss development organisations (Swiss Agency for Development and Cooperation, and Helvetas) and the Food and Agriculture Organisation of the United Nations (FAO).

Academic Output

Working Paper

Do national trade policy changes increase global food price volatility?

Price volatility in global agricultural markets has gained increasing prominence since the world food price crises of the years 2007-08 and 2010-11. While the public and media awareness focused on rising food price levels, the political response concentrated on food price volatility. This political priority is reflected in a dedicated target on food price volatility in the 2030 Agenda for Sustainable Development. National governments have frequently resorted to agricultural trade policy interventions as a means to stabilize domestic food prices with the aim of averting adverse effects on poor consumers and agricultural producers. However, there is a widespread concern that trade policy interventions result in even more volatile global market prices. Yet, the empirical evidence behind this concern is thin. If national trade policy interventions indeed increase global price volatility, their effects most likely appear on the day that trade policy changes are announced. This paper presents the first analysis on the effects of the announcement of national trade policy changes on global food price volatility. We develop an original dataset on announcements of national trade policy changes covering the main global staple crops, namely wheat, maize, and rice, and the time period from 2005 to 2017. Our results show that the announcement of national trade policy changes, specifically restrictive export and liberal import policies, can result in increases of global food price volatility on their announcement day and a few days thereafter, yet the persistence of these trade-policy related volatility effects is short. Moreover, the results show that adequate stock levels can minimize the observed short-term effects. Our results hence provide little empirical support to the concern that national agricultural trade policies exacerbate global food price volatility.

Working Paper

Improved on-farm storage reduces seasonal food insecurity of smallholder farmer households – Evidence from a Randomized Control Trial in Tanzania

Ending hunger is a key goal of the 2030 Agenda for Sustainable Development, adopted in 2015. This goal notwithstanding, the prevalence of severe food insecurity of the world’s population has increased. It is highest in Sub-Saharan Africa, where the seasonality of harvests leads to fluctuations in food insecurity, particularly in the lean season, the time before the harvest is brought in. We posit that addressing seasonal food insecurity requires not only increased food production, as is commonly argued, but also consideration of post-harvest losses during storage. Here we present the results of a randomized control trial on the effects of improved on-farm storage on seasonal food insecurity. Our intervention provided farming households from two districts in Tanzania with hermetic storage bags that can help reduce storage losses. The results show that the intervention reduced the proportion of severely food insecure households by 40% on average in the lean season, and by 21% in the full seasonal cycle, with households of female participants benefiting most from the intervention. These findings demonstrate that a simple and inexpensive technology could contribute strongly to reducing seasonal food insecurity and improving smallholder farmers’ year-round access to food.

Working Paper

The effects of improved on-farm storage on food price in local markets – Experimental evidence from Tanzania

Seasonal food price gaps, which are the differences between the highest and lowest prices in a harvest cycle, have important welfare consequences in Sub-Saharan Africa. In a region where income from agricultural production and expenditure for food both have considerable shares in household’s budgets, poverty and food security are closely linked to food prices and their seasonal changes. The extent of seasonal price gaps in the region suggest that intertemporal arbitrage is constrained. This paper argues that high post-harvest losses during storage limit farmer’s intertemporal arbitrage, and thereby contribute to seasonal price gaps. The argument is tested by randomly allocating an improved on-farm storage technology to smallholder farmers groups in two districts of Tanzania. The technology, hermetic storage bags, can minimize storage losses even under extended periods of storage. Local market prices are tracked on a weekly frequency over the course of two harvest cycles. The results document significant effects of improved on-farm storage on local market prices in both harvest cycles, with most pronounced effects in the lean season, the time shortly before a new harvest is brought in. The results further show a significant reduction of seasonal food price gaps in the first harvest cycle by 16%, as well as in the second harvest cycle (albeit not significantly so in the second cycle). The results suggest that the absence of suitable storage technologies is an important limiting factor for smallholder farmers to make use of intertemporal arbitrage opportunities. The results thus highlight the need to consider improved on-farm storage as policy and development option to counter seasonal food price gaps and their adverse effects on poverty and food security.

Executive Summary

The project “Food Price Volatility” is an interdisciplinary research project implemented by the University of Zurich in collaboration with academic partners (WTI at the University of Berne, IPSARD in Hanoi), development agencies (SDC, Helvetas), and the United Nations (FAO). The project offers three major contributions. First, the project results suggest that trade policy measures that aim to limit national food price volatility have a limited, and rather short-lived impact on global food price volatility, in particular when contemporaneous stocks are high. These results do not lend empirical support to the common concern that trade policy measures amplify global food price volatility and thereby cause “beggar-thy-neighbour” effects. Second, rising food prices, and higher food price volatility generally impose adverse effects on the food insecurity of the urban population in low-income countries, while the impact on food insecurity of the rural population is conditional on the harvest cycle. For this part of the population, food insecurity is reduced when prices increase during harvest time, while the opposite is observed during the rest of the year. These results highlight that the effects of rising global food prices on food insecurity are different between and within countries. Finally, we find that improved on- farm storage significantly reduces food insecurity of adopting smallholder farmer’s households, and significantly dampens seasonal food price fluctuations in local markets. This result calls for increased attention to the promotion of improved on-farm storage as part of efforts to achieve the Agenda 2030 for Sustainable Development.

Other Output

Policy Brief

This Policy Brief has two purposes:

(1) It informs regulators, negotiators, and national and global stakeholders engaged in policy processes around sustainable development, namely the implementation of Agenda 2030 adopted in September 2015, and of the Sustainable Development Goals #2 (ending hunger) and #12.3 (halving per capita global food waste). At the first UN Summit on the SDGs, heads of states and governments will examine progress in attaining these goals.

(2) It will also contribute to the work of the Committee on World Food Security (CFS) on the Voluntary Guidelines on Food Systems and Nutrition, particularly on the price volatility reduction achievable by improved storage for small farmers.

Research Team

Matthias Huss
Coordinator
Universität Zürich

Joachim Scholderer
Co-Coordinator
Universität Zürich

Philipp Aemi
Principal Member
Universität Zürich

Michael Brander
Principal Member
ETHZ

Raphael Dischl
Principal Member
Helvetas Swiss Intercooperation

Marco Haase
Principal Member
Universität Zürich

Christian Häberli
Principal Member
Universität Bern

Khoi Dang Kim
Principal Member
Other

Le Thi Ha Lien
Principal Member
Other

Trang Cong Than
Principal Member
Other

Nguyen Thi Ha Trang
Principal Member
Other

Friederike Greb
Associated Member
Food and Agriculture Organisation of the United Nations

Status

completed

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Regions

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Indonesia, Philippines, Tanzania, Vietnam

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Coordinator

Year