Abstract
AbstractLao PDR has extensive export controls on its staple food, glutinous rice, which keep domestic prices low relative to international prices. Using price, harvest, and export data this paper analyses how glutinous rice prices in Laos PDR are related to those in its trading partners, Thailand and Vietnam. We find that rice prices in Lao PDR are more likely to rise following a good harvest year than a bad or a normal year. This is consistent with export controls being relaxed after good harvests, leading to an increase in exports early in the season and rising prices later as stocks are depleted. There is thus a case for removal of trade restrictions since they give rise to price spikes while keeping the long‐term price of glutinous rice low, and thereby hinder increases in income from agriculture. However, since high rice prices are likely to affect the poor negatively in the short to medium term, a combination of an export tax and cash transfers is recommended during the transition period. Although this is a case study of Lao PDR, the findings may equally apply to other developing countries that export their staple food.
Highlights
In the face of rapidly increasing rice prices, the Lao government imposed a rice export ban in November 2010
Rising or very high staple food prices constitute a great challenge in many less-developed countries: they directly affect the poor, who often spend more than half of their income on food, and they raise the risk for food riots and political unrest (Barrett and Bellemare, 2011; Bellemare, 2011; Bellemare, et al, 2013)
In the long-term both the non-poor and the poor are expected to benefit from trade liberalization and higher rice prices: Ivanic and Martin (2014b) simulate the impact of food price increases in a number of countries and find that poverty decreases in rice-producing countries such as Cambodia and Vietnam; Jacoby (2013) shows that food price increases in India led to even faster increases in rural employment and wages, thereby reducing poverty; and a recent World Bank study attributes an important part of the poverty reduction in Cambodia to improvements in rural wages and agricultural employment following an increase in the price of rice (World Bank, 2013)
Summary
In the face of rapidly increasing rice prices, the Lao government imposed a rice export ban in November 2010. In the long-term both the non-poor and the poor (who tend to be netconsumers of rice) are expected to benefit from trade liberalization and higher rice prices: Ivanic and Martin (2014b) simulate the impact of food price increases in a number of countries (but not Lao PDR) and find that poverty decreases in rice-producing countries such as Cambodia and Vietnam; Jacoby (2013) shows that food price increases in India led to even faster increases in rural employment and wages, thereby reducing poverty; and a recent World Bank study attributes an important part of the poverty reduction in Cambodia to improvements in rural wages and agricultural employment following an increase in the price of rice (World Bank, 2013).
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