Abstract
Trade of agricultural commodities has grown significantly in most Latin American countries (LAC) over the last two decades. However, after the international food price surges in 2006-08 and 2011-12 concerns about food access of the poor arose. Within a panel framework containing six LAC (Argentina, Brazil, Chile, Colombia, Mexico and Peru), we used a single equation error correction model to identify possible cointegrating relationships between the food consumer price index (CPI) and a set of trade related and domestic variables. The main focus of the study was to examine how different levels of trade openness impact international food price transmission to domestic markets. Our results confirm that deeper market integration increases global price transmission elasticities. In other words, more agricultural trade openness proves to elevate food CPIs during global price spikes. Thus, for poor consumers world price shocks can be deteriorating in the short-run and domestic food prices will slowly converge to a higher long-run equilibrium. Especially in increasingly integrated economies, effective policies to buffer food price shocks should be put in place, but must be carefully planned with the required budget readily available. We also found that exchange rate appreciations can buffer price shocks to a certain extent and that monetary policies seem to be an appropriate means for stabilizing food prices to safeguard food access of the poor population.
Highlights
Since the mid-1980s, reducing agricultural and nonagricultural trade distortions has led to structural changes in Latin American countries (LAC), affecting food prices as well as economic development (Anderson et al, 2011)
World food price transmission is expected to increase with higher degrees of trade openness, because countries would be more affected by international price fluctuations than rather closed economies
Apart from world market integration and volatile global food prices, we investigated the role of some macroeconomic factors that influence food prices
Summary
Since the mid-1980s, reducing agricultural and nonagricultural trade distortions has led to structural changes in Latin American countries (LAC), affecting food prices as well as economic development (Anderson et al, 2011). According to the law of one price, trade liberalization leads to a price increase of exported food products and a price decrease of imported food, because domestic prices adjust towards global price levels (Goodwin et al, 1990; Miljkovic, 1999). ECLAC (2008) states that food exporters that increasingly sell into international markets have experienced accelerated food price inflation In this context, the transmission of high international prices into domestic prices has received attention (Benson et al, 2008; Dawe, 2008; Alemu & Ogundeji, 2010; Cudjoe et al, 2010; Jalil & Tamayo, 2011; Minot, 2011; Baquedano & Liefert, 2014). All these studies show country and crop specific results, This work has 2 supplementary tables and 1 supplementary figure that do not appear in the printed article but that accompany the paper online
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