Food price policy: The rationale for government intervention

Abstract

Policy-makers in the most successful developing countries have not accepted either of the two major schools of thought on food price policy. The neo-classical school favours free trade to maximize efficiency of resource allocation. The structuralist school favours interventions to satisfy goals for income distribution. Especially in the rapidly growing, rice-based economies of Asia, policy-makers have been more concerned about stability of domestic prices than their level relative to world prices. This concern, traditionally dismissed by economists as purely political, is justified on economic grounds because of improved macroeconomic and dynamic efficiency from stable food prices. The paper identifies both the benefits from food price stability and the costs of achieving it.