Managing food price instability in developing countries. A critical analysis of strategies and instruments

Food price instability has dramatic consequences in developing countries where it hits consumers hard and causes food insecurity. The risk it entails for producers is so great that it discourages them from investing. It therefore blocks the road to economic development. In certain cases, price instability also generates political instability and macroeconomic imbalances.
Based on a comprehensive review of the theoretical and empirical literature, this book provides elements for the definition of a strategy for managing food price instability and for selecting appropriate instruments for its implementation. It first presents an overview of possible interventions according to their objective (price stability or mitigation of the impacts of price instability) and type of interventions (public or market-based mechanisms). The document then provides a detailed analysis of the different instruments that can be employed (main advantages, limitations and perverse effects), and the complementarity and substitutability relations between them. The author emphasizes the limits of traditional responses based on a strategy combining price risk management (through private risk-hedging tools) and crisis management (through emergency aid). Several recommendations are made for structural responses, including a stronger involvement of States to facilitate farmers’ access to inputs, to recapitalize vulnerable households and to avoid price spikes.

Frank Galtier, with the collaboration of Bruno Vindel, AFD - December 2012