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Trade insulation for food does not decrease global poverty



Authors: Kym Anderson, ANU and University of Adelaide, Maros Ivanic and Will Martin, World Bank

Many countries use trade policy to protect their own consumers from spikes in international food prices. It turns out that this well-intentioned practice can actually do more harm than good. During food price spikes — such as those in mid-2008, early 2011 and mid-2012 — governments restricted the export of food staples or lowered barriers to importing them. They hoped to keep increases in their domestic prices of rice, wheat, maize, and oilseed products low, reasoning that this would help their poor and stop people from falling into poverty. But there is new evidence to indicate that, while the practice tended to keep each country’s domestic prices down relative to the world prices at the time, it also contributed to the rise in international prices that was the original source of concern.

In a recent working paper we explore this phenomenon and found that such insulation from international price movements did not reduce global poverty in 2008. On the contrary, we estimate it may have increased poverty slightly (by 8 million people).

Sudden jumps in food prices can have serious social consequences. In mid-2008, the doubling of rice prices prompted urban riots in dozens of developing countries. Increases in food prices may have also contributed to the unrest before the Arab Spring. Food prices also disproportionally affect poor net buyers of food, who spend the majority of their incomes on food. So it is with good reason that national governments watch food prices carefully.

But policies aimed at insulating domestic food markets from price spikes had two other effects that actually increased poverty.

The first is that such policies hurt poor farmers and others who sold more food than they bought — and may have kept them from rising above the poverty line.

The second effect is more subtle, and double-barreled. By restricting exports or lowering import barriers on tradable food staples, price insulation policies exacerbated the international price spike. As a consequence, they may have driven more people into poverty in other countries than they helped in the countries where governments responded in that way.

This boost to international prices may also have undermined the desired effect at home. The policy may look successful when the rise in domestic food prices is compared to the actual rise in international markets. But a more relevant comparison is what the international price rise would have been had no countries altered their trade restrictions. Indeed, we have shown that if the same proportion of the world’s exporting and importing country groups happened to insulate to the same extent, domestic prices in both country groups would rise just as much as if no country had insulated. This is akin to a crowd of people of equal height in a stadium trying to see better by standing up.

In reality, however, countries intervene to different extents and the system of cause and effect is complex. The impact of price insulation on poverty in any one country depends on both the actions taken by that country and the collective impact of interventions by all other countries. It also depends on the structure of each economy and, in particular, on what proportion of households is near the poverty line and the proportions of those vulnerable households that are net buyers or sellers of staple foods.

Many scenarios are possible. If countries where the poor are most adversely affected by higher food prices insulate more than countries where the poor are less vulnerable to (or would benefit from) food price spikes, the price insulation may reduce the number of people who are driven into poverty. By contrast, in some net food-exporting countries such as Vietnam, higher food prices may actually reduce poverty because there are many relatively poor farmers who are net sellers of food.

To sort out the actual net effects of recent food-trade restrictions, we looked at data on the changes in agricultural trade restrictions during periods of rapid increases in international food prices, and estimated the impacts of consequent domestic price changes on poverty in different countries.

Our study finds that the actual poverty-reducing impacts of insulation are much less than their apparent impact. If we ignore the impact of policy actions on international prices, we estimate that 82 million people were saved from falling below the US$1.25 international poverty line. But, if we take into account the impact on international food prices — so as to better reflect reality — we estimate that global poverty increased by 8 million people (though that result is not significantly different from zero). In South Asia, the difference is dramatic: the estimated number saved from poverty there falls from 70 million to virtually none.

One implication of these findings is clear: trade policy is not the best instrument to fight poverty. Much better suited for that goal are domestic policy instruments such as conditional transfers, which provide social protection for the poor far more efficiently and equitably than variations in border restrictions. It is time to seek a multilateral agreement to desist from changing restrictions on trade when international food prices spike, and to focus on measures that actually reduce — rather than merely rearrange — the adverse impacts of high food prices on the poor.

Kym Anderson is Professor of Economics at the Arndt-Corden Department of Economics, Crawford School of Public Policy, ANU, and the George Gollin Professor of Economics at the University of Adelaide. Maros Ivanic is an economist with the Agriculture and Rural Development research team at the World Bank. Will Martin is the Research Manager of the Agriculture and Rural Development team at the World Bank.

This article is based on the ANU Trade and Development Working Paper, ‘Food Price Spikes, Price Insulation, and Poverty’.

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Trade insulation for food does not decrease global poverty


ASEAN weathering the COVID-19 typhoon



Vietnam's Prime Minister Nguyen Xuan Phuc addresses a special video conference with leaders of the Association of Southeast Asian Nations (ASEAN), on the coronavirus disease (COVID-19), in Hanoi 14 April, 2020 (Photo:Reuters/Manan Vatsyayana).

Author: Sandra Seno-Alday, Sydney University

The roughly 20 typhoons that hit Southeast Asia each year pale in comparison to the impact on the region of COVID-19 — a storm of a very different sort striking not just Southeast Asia but the world.


Just how badly is the COVID-19 typhoon thrashing the region? And what might the post-crisis recovery and reconstruction look like? To answer these questions, it is necessary to investigate the strengths and vulnerabilities of Southeast Asia’s pre-COVID-19 economic infrastructure.

Understanding the structure of the region’s economic house requires going back to 1967, when Southeast Asian countries decided to pledge friendship to one another under the ASEAN framework. While other integrated regions such as NAFTA and the European Union have aggressively broken down trade barriers and significantly boosted intra-regional trade, ASEAN regional economic integration has chugged along slower.

Southeast Asian countries have not viewed trade between each other as a top priority. The trade agreements in the region have been forged around suggestions for ASEAN countries to lower tariffs on intra-regional trade to within a certain range and across limited industries. This has lowered but not eliminated barriers to intra-regional trade. Consequently, a relatively significant share of Southeast Asian trade is with countries outside the region. This active extra-regional engagement has resulted in ASEAN countries’ successful integration into global value chain networks.

A historically outward-facing region, in 2010 around 75 per cent of Southeast Asian commodity imports and exports came from countries outside of ASEAN. This share of extra-regional trade nudged closer to 80 per cent in 2018. This indicates that ASEAN’s global value chain network embeddedness has deepened over time.

Around 40 per cent of ASEAN’s extra-regional trade is with the rest of Asia. From 2010 to 2018 Southeast Asian countries forged major trade relationships with four Asian countries: China, Japan, South Korea and India. Outside Asia, the United States is the region’s major trading partner. ASEAN’s trade focus on Asia’s largest markets is not surprising. Countries tend to establish trade relationships with large, geographically close, and culturally similar markets.

Fostering deep relationships with a few large markets, however, is a double-edged sword. While it has allowed ASEAN to benefit from integration in global value chains, it has also resulted in increased vulnerability to the shocks affecting its network connections.

ASEAN’s participation in global value chains has allowed it to transition from a net regional importer in 1990 to a net regional exporter in 2018. But the region’s deep embeddedness in a small and tightly-coupled network cluster of extra-regional global value chain partners has exposed it to disruption to any and all of its external partners. By contrast, ASEAN’s intra-regional trade network structure is much more loosely-coupled: a consequence of persistent intra-regional trade barriers and thus lower intra-regional trade intensity.

In the pre-COVID-19 period, ASEAN built for itself an economic house held up by just five extra-regional markets, while doing less to expand and diversify its intra-regional trade network. The data shows that ASEAN trade became increasingly concentrated in these few external markets between 2010 and 2018.

This dependence on a handful of markets does not bode well for risk and crisis management. All of the region’s major trading partners have been significantly affected by COVID-19 and this in turn is blowing the ASEAN economic house down.

What are the ways forward? The immediate task at hand is to get a better picture of the region’s position in global value chain networks and to get on top of managing its network risk exposure. Already there are red flags around the region’s food security arising from its position in food value chains. It is critical to look for ways to introduce flexibility into existing supply chains for greater agility in responding to crises.

It is also an opportune time for ASEAN to harness the technology transfer gains of global value chain participation and invest in innovation-driven diversification of products and markets. The region’s embeddedness in global value chain networks certainly places it in a strong position to readily access large export markets not just in Asia but also Europe and the Americas.

Over the longer term, ASEAN is faced with the question of whether it should seriously look…

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