Food price volatility
Food price volatility is a serious global concern. Since the food crisis of 2008, the world has struggled to address unexpected, rapid rises and falls in global food prices, which have sparked political unrest and increased economic risks across the food system. Price volatility has also become a major concern for governments as they seek to ensure consumers’ access to healthy diets.
The world’s food systems face growing systemic challenges in providing healthy affordable diets for all. These challenges include long-term threats to food production including water scarcity, soil degradation, the environmental impacts of climate change and competition for productive land due to urban expansion.
Price volatility is a particularly serious problem for poor households, especially in low-income countries, as these households spend as much as 75% of their total income on food.
Unexpected price declines can lead to a sharp fall in incomes while price rises often reduce the quantity and quality (diversity and nutrient density) of foods consumed. For poor urban consumers, unanticipated increases in food prices require dietary changes that often result in poorer nutrition, if not outright hunger.
The challenge for policymakers is to identify the right combination of policy actions across the food system that can moderate price rises and dampen price volatility, thus protecting consumption and nutrition while mitigating impacts on rural incomes and production.
However, policies which fail to recognise and accommodate these relationships are likely to fall short of delivering the desired outcomes. For example, while individual countries can try to insulate themselves from global food price hikes by banning food exports, such measures usually exacerbate international price volatility and fuel greater unpredictability. Similarly, the provision of input subsidies to boost local production and food supplies in the short-term can be costly and difficult to remove when price levels fall.
Policy actions to manage price volatility
Policymakers can employ a variety of policy tools to better predict prices and manage the price volatility that can compromise food system integrity. Policy options, and their prioritisation, are context dependent but can include:
- Promoting long-term growth in agricultural productivity through, for example, the production of diverse commodities that contribute to healthy diets;
- Fostering efficient and stable food markets, through investment in road infrastructure and its upkeep;
- Encouraging the transformation of agricultural commodities into food products that are affordable, safe and nutritious;
- Providing targeted and flexible food safety nets to ensure access to healthy diets and national nutrition security.
The policy brief
The policy brief “Managing food price volatility: policy options to support healthy diets and nutrition in the context of uncertainty” identifies policy interventions that can anticipate and mitigate the negative dietary and nutritional outcomes of price volatility and market uncertainty. Policy interventions include short-term actions to protect the quality of consumers’ diets as well as long-term strategies that foster more stable and predictable food markets and prices.
Read Ugo Gentilini's blog. Ugo is senior economist with the Social Protection and Labor Global Practice at the World Bank.