Food Price and Trade Policy Evolution Since the 1950s: A Global Perspective1

Published date01 March 2014
Date01 March 2014
World Food Policy
Agricultural and food industries have
been subjected throughout histo-
ry to perhaps more governmental
interventions than any other sector of na-
tional economies. As of 2004, agricultur-
al trade-related policies are estimated to
account for 70 percent of the global wel-
fare cost of the world’s merchandise trade
distortions, even though the agricultural
sector contributes only 6 percent of global
trade and 3 percent of global GDP (Ander-
son, Cockburn, and Martin 2010, Table 2.3).
For advanced economies, the most
commonly articulated reason to restrict food
trade has been to protect domestic producers
from import competition as they come un-
der competitive pressure to shed labor. Such
measures harm not only domestic food con-
sumers and exporters of other products but
also foreign producers and traders of food
products. For decades, agricultural protec-
tion and subsidies in high-income (and some
middle-income) countries have depressed
international prices of farm products, low-
ering the earnings of farmers and associat-
ed rural businesses in developing countries.
Meanwhile, developing countries’
policies have further depressed the price in-
centives for their farmers, thus exacerbating
the deleterious efects on them of the richer
In both rich and poor countries, food markets have been subjected to some of the
most heavy-handed governmental interventions. Policy developments in this sector
since the 1950s have been mostly gradual but persistent, involving in many cases
a change from taxing to subsidizing farmers—and from subsidizing to taxing food
consumers—as national per capita incomes grow. In a few important countries there
also have been transformational policy reforms, and in all countries there tends to
be only partial short-run transmission of international price luctuations to domes-
tic markets—a tendency that has not declined over time. his paper summarizes in-
dicators of these trends and luctuations in price-distorting impacts of policies for a
sample of 82 countries, using a global set of annual data from 1955 to 2011. It then
draws implications for what policy interventions might evolve over coming years,
especially as emerging economies attain and move beyond middle-income status.
JEL codes: F13, F14, N50, Q17, Q18
Keywords: Distortions to food markets, nominal rate of assistance, welfare reduction
Kym Anderson2
A Global Perspective1
1 his paper draws on one section of a recent survey, co-authored by Gordon Rausser and Johan Swin-
nen, published in the June 2013 issues of the Journal of Economic Literature. I thank those co-authors for
their insights, and also Signe Nelgen for assistance with the igures and tables. Financial support from the
Australian Research Council and Rural Industries Research and Development Corporation is also gratefully
2 George Gollin Professor of Economics, School of Economics, University of Adelaide; CEPR Fellow; and
Professor of Economics, Arndt-Corden Department of Economics, Australian National University, Canberra.
Food Price and Trade Policy Evolution Since the 1950s:
Food Price and Trade Policy Evolution Since the 1950s: A Global Perspective
countries’ farm policies. Governments
of many developing countries have taxed
their farmers more heavily than produc-
ers in other sectors. As well, many devel-
oping countries chose to overvalue their
currency and to pursue an import-sub-
stituting industrialization strategy by re-
stricting imports of manufactures. To-
gether, these measures have indirectly
taxed net sellers of food in developing
economies, while efectively subsidiz-
ing those countries’ net buyers of food.
hese policies mean there has
been overproduction of food in high-in-
come countries and underproduction
in low-income countries. hey also
mean there has been less internation-
al food trade than would have been the
case under free trade. he end result is
thinner and thus more volatile markets
for these weather-dependent products.
Food po licies became newswor-
thy during 2008–12 because internation-
al food prices spiked upwards three times
in that period. hese price spikes have
been caused partly by biofuel policies, but
they have been exacerbated by the grain
trade-policy responses of numerous coun-
tries at a time of low global grain stocks.
Responses by food-surplus developing
countries typically involved restrictions on
exports, while those by food-deicit devel-
oping countries involved a lowering of im-
port barriers. he policymakers’ ostensible
motivation for these variations in border
restrictions—which have also occurred in
previous price-spike p eriods—has been to
prevent a decline in national food security:
each country has aimed to protect its do-
mestic food consumers (and indirectly, to
protect the current government from los-
ing power). Together, however, these mea-
sures have ampliied international price
spikes so that each countr y’s measures
have harmed other countries’ food con-
sumers (Carter et al. 2011; Martin and An-
derson 2012; Anderson and Nelgen 2012).
Some agricultural- and trade-policy
developments of the past half-centur y have
happened quite suddenly and been trans-
formational. Such events include decolo-
nization in Africa and elsewhere around
1960; the creation of the Common Agricul-
tural Policy (CAP) in Europe in 1962; the
introduction of lexible exchange rates from
the 1970s; liberalization, deregulation, pri-
vatization, and democratization in many
countries from the mid-1980s; the open-
ing of markets in China in 1979, in Viet-
nam in 1986, and in Eastern Europe (fol-
lowing the fall of the Berlin Wall) in 1989;
and the demise of the Soviet Union in 1991.
However, dominating the post World
War II p er i o d a re t h e i nl u e nc e s i n s ov e r-
eign states of policies that change gradually
in the course of economic development, as
incomes grow and comparative advantages
evolve. hese trends, and the above-men-
tioned turning points, are revealed in a
global ive-decade database of evidence re-
cently compiled by the World Bank. hat
database also exposes both the extent to
which recent agricultural policy reforms
have succeeded in reversing prior policy
trends, and an emergence of agricultur-
al protection in middle-income countries.
he next section of the paper outlines
the database and its various empirical indi-
cators of policy induced price distortions in
national markets of both high-income and
developing countries. he following section
summarizes the trends and luctuations in
those indicator estimates. he inal section
draws implications for what policy inter-
ventions might evolve over coming years,
especially as emerging economies attain
and move beyond middle-income status.

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