Is market liberalization compatible with food security?: Storage, trade and price policies for maize in Southern Africa

Abstract

Concern for the negative impacts of staple food price fluctuations limits the extent to which governments in low-income countries are willing to liberalize their agricultural markets. These concerns are legitimate, as such price fluctuations can lead to high transactions costs for poor consumers in the short run and low growth in the long run. However, past government attempts to stabilize food prices completely have been expensive and ineffective. Use of a dynamic programming optimization model suggests that a different type of policy regime could reduce price variability significantly compared to what would prevail in free markets, and could accomplish this at relatively low cost. This policy regime includes allowing some official price flexibility with respect to changes in production and world price, exporting when regional market opportunities exist, and holding considerably lower stocks than in the past.