Facilitating Short and Longer-Term Supply Response to Higher and More Volatile Food Prices
International food prices spiked for the second time in four years in early 2011, igniting concerns about a repeat of the 2008 food price crisis and its consequences for the poor. International food price uncertainty has also increased along with a...
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
Washington, DC
2017
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| Online Access: | http://documents.worldbank.org/curated/en/333101468348849576/Facilitating-short-and-longer-term-supply-response-to-higher-and-more-volatile-food-prices http://hdl.handle.net/10986/27122 |
| Summary: | International food prices spiked for the
second time in four years in early 2011, igniting concerns
about a repeat of the 2008 food price crisis and its
consequences for the poor. International food price
uncertainty has also increased along with average levels.
Although price volatility is an intrinsic characteristic of
agricultural markets, it has increased markedly over the
last five years, compared to the previous two and a half
decades, even when controlling for inflation. More adverse
weather conditions in the main producing regions, rising
land and water constraints, and stronger linkages with more
volatile oil prices, including through biofuels, tend to
place upward pressure on food price volatility. These
factors are likely to persist in the short-to medium-term
suggesting that volatility may be higher in the future than
that observed in the 1980s, 1990s, and early 2000s. Episodes
of high prices and extreme volatility create uncertainty
that is a major threat to food security in developing
countries. Farmers deciding what to plant, and countries
deciding when to import, face significant uncertainty with
respect to the distribution of future food prices. While
producers who are net sellers have welcomed recent periods
of high prices, uncertainty as to post-harvest prices is a
disincentive to a strong supply response, especially in
poorer developing countries. Finally, there is a need to
improve the access of farmers to appropriate price risk
management tools (financial services, including saving
mobilization) to reduce the negative impact of price
volatility on production decision and help ensure supply
response to higher prices. Improving access to
infrastructure, maintaining low inflation (precautionary
savings), and financial sector development (reflective of
risk management capacity) can help to reduce the negative
effective effects of price volatility on production decisions. |
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