Food price spikes, price insulation, and poverty

Abstract

Many countries have responded to spikes in international food prices such as those of mid-2008, early 2011, and mid-2012 by adjusting their agricultural trade barriers in an attempt to partially insulate their domestic markets from the price rises. Even when it may appear to each individual country that it has been successful, in the sense that its domestic price rose less than the international price for its food staples, this success is frequently more illusion than reality. The reason is that these policy responses-reductions in import protection or increases in export restraints-exacerbate the initial increase in the international price. Indeed, if both exporting and importing country groups happened to insulate to the same extent, domestic prices in both country groups would rise just as much as if no country had insulated (Martin and Anderson 2012). In reality, however, countries intervened to different extents, so that the impact of price insulation depends on both the actions taken by the country itself and the collective impact of interventions by all other countries….