Summary

1. Trade policy and food price volatility in LIFDCsbyDavid HallamFood and Agriculture OrganizationDiscussion:Paulo BastosWorld Bank

2. Summary A. Public goods provided by FAO • GIEWS price tool • Food and Agriculture Policy Decision Analysis (FAPDA) • Reports, country-case studies B. Trade policy changes in response to the 2007-08 food price crisis and some of their impacts (focus on LIFDCs and cereals)

3. Trade policy responses to 2007/2008 food price crisis 1. Reduction of import tariffs • Dominant response in the face of price hikes (consistent with Martin and Anderson, 2012 AJAE; Bastos, Straume and Urrego, 2013 JIE) • Frequently led to permanent reductions in import tariffs (liberalizing effect) - interesting finding - would like to see more systematic research on this issue • Likely impacts: - all else equal, reduction of food prices faced by domestic consumers; - if all countries do this at the same time, world price spikes may be exacerbated (Martin and Anderson, 2012) - if permanent and generalized, tariff reductions would be expected to reduce price levels faced by consumers, increase trade volumes, and raise consumer welfare in a permanent way

4. Trade policy responses to 2007/2008 food price crisis 1. Reduction in import tariffs • If permanent, tariff reductions will cease to become a relevant stabilization instrument - In fact, import tariffs are already low in many LIFDCs

5. Trade policy responses to 2007/2008 food price crisis

6. Trade policy responses to 2007/2008 food price crisis

7. Trade policy responses to 2007/2008 food price crisis 1. Reduction in import tariffs • Need to consider other instruments to address food security • Temporary import subsidies are not targeted to the poor, are difficult to finance, and have collective action problems • Optimal storage policies appear to be difficult to implement in many countries and are also likely to have collective action problems • Food/cash subsidies in the context of social safety nets targeted to the poor appear to be a superior (first best) policy option • But several low income net food importers may lack institutional capacity to implement them effectively? (Needs to be part of longer term policy, not just designed/implemented in times of crises)

8. Trade policy responses to 2007/2008 food price crisis Methodological point: • A “macro definition” of net food importers hides a lot of within-country heterogeneity • A large share of food imports may be consumed by richer/urban households • Even in net food importing countries, incomes of the poorer households and regions are often directly or indirectly linked with agricultural production/prices (even in the short term?) • This within-country heterogeneity may be behind apparent schizophrenia of trade policies adopted in these countries (e.g. removing import tariffs and imposing import quotas) – warrants more research • Puts additional limits to the use of trade policy (macro instrument) to address issues of food security driven by price volatility

9. Trade policy responses to 2007/2008 food price crisis 2. Export restrictions • Used less frequently than import tariffs in these countries during 2007-08 crisis • Typically imposed temporarily (unlike reductions in import tariffs) • Often are an ineffective stabilization instruments • Even if apparently effective for domestic price stabilization, they are worrisome in terms of potential effects on world prices due to collective action problems • Negative impacts on local production, wrong signal to longer term supply and export decisions by firms • Firm-level literature trade literature points to high sunk costs of exporting and emphasizes negative role of trade policy uncertainty for export performance (Limao and Handley, 2012, 2013)