MIFIRA Framework Lecture 4 Food Policies Chris Barrett and Erin Lentz February 2012

Key External Factor: Policies Food price dilemma Focus on policies affecting behaviors of food market actors: Consumers Producers Traders and millers Are the various policies implemented? Are the policies enforced / enforceable? Local, national, or regional level - effects Consider both informal and formal policies Informal = outside of official governmental policy 2

FEWS: Policy impacts (Lesson 3, p. 24) 3

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Exchange Rates Depreciating currency or devalued currency Imports are costlier Exports are cheaper Appreciating currency or overvalued currency Imports are cheaper Exports are costlier 5

Big Mac Index and Purchasing Power Parity: Exchange rates should equalize the prices of the same baskets of goods across countries 6 Source: Economist Magazine

Shifts in Prices 7 Price ceilings, floors Domestic price setting: Marketing boards continue to play major role in food and input markets For maize, marketing boards handle 15-57% (Kenya), 3-32% (Malawi),11- 45% (Zambia) – Jayne et al Fixed prices can distort trade with neighbors as well as change production incentives

Shifts in Prices 8 Source: Timmer et al P. 192.

Shifts in supply curve Following a drought, the government opens its borders Imports across the border moderate the drought-induced production shortfall 9

Shifts in Supply or Demand 10 Source: Timmer et al

Number of countries Reduce taxes on food grains (+ +)7 Price controls/ consumer subsidies (- +)4 Fuel subsidies (+ -)1 Increase supply using food grain stocks (+ -)4 Increase supply via imports (+ +)2 Export restrictions (- -)4 Cash transfer (+ +)4 Food for work (+ +)4 Food ration/ stamp (+ -)4 School feeding (+ +)5 (+ + ) Consistent with long run policies to improve food security ( + - ) Some concerns for food security; ( - + ) Likely to hinder food security ( - - ) Highly likely to hinder food security Source: World Bank, 2008 from “ Improving the Performance of Staple Markets to Exploit the Productive Potential of Smallholder Agriculture” T. S. Jayne, A. Chapoto, and B. Shiferaw Policy responses to rising food prices in COMESA and ASARECA countries,

Sources of policy risk for traders and food marketing Trade policy outcomes depend on number of factors aside from policy design: Implementation, institutional strength, enforcement Transparency and responsiveness of policymakers Stability / fickleness of policy regimes Traders face policy risk: Lack of transparency Lack of predictability Variable enforcement 12