Political Economy of Recent Global Food Price Shocks: Gainers, Losers and Compensatory Mechanism

Abstract

Food prices have increased steadily since 2003 to become a real burden to the poor and net purchasers of food, although price shocks could be an opportunity to stimulate agricultural production and enhance the contribution of agriculture to medium-run growth. In short, the recent food price shocks make gainers and losers. The complexity of the concerns is examined in a political economy analysis of the phenomenon. More specifically, countries have been differentiated according to their degrees of vulnerability to the rising food prices. The second step examined the heterogeneities in the macroeconomic effects of the rising food prices on malnutrition, public spending, current account balances and food production in developing countries, emphasising the specificities of African countries, the position of the countries as food importers or exporters, as oil exporters or not and finally on the political climate–conflict or post-conflict–that prevailed right before 1995–2006. The findings are that food inflation increases malnutrition, pushes up public spending and dampens the current account balances in vulnerable countries, whereas it constitutes a financial opportunity for less vulnerable countries and/or for vulnerable but net food-exporting countries. While oil exports absorb the negative effects of food price shocks, African specificities tend to magnify those effects. Actual responses of countries remain limited in number, despite the great number of policy options that have been designed by international organisations. While severe budget constraints are binding on the use of safety nets, administrative policies often constrain the considered economy. An alternative compensatory mechanism is to sustain agricultural supply response by converting the food price shocks into real price incentives in the developing countries, upon undertaking the appropriate and viable investment in the sector.