Report on Food prices and the multiplier effect of export policy
This paper gives a brief report on the effect of export policy on food prices, presented by Michele Ruta (World Trade Organization) on 29th Sept, 2011.The paper consider the impacts of trade policy interventions on international and domestic food prices in the limiting case where countries seek to completely offset the impact of changes in the international market on their domestic market. The paper first analyzed the sudden increase of world food prices in 2007 and 2008, which is a major factor pushing commodity/food price increases in recent years. Other factors include the demands of the biofuels industry, particularly for corn, and China’s decision to import huge quantities of soybeans due to income growth and stocks-building.
The report also assesses the use of export taxes, in the context of a food crisis. It summarizes how export measures creates a multiplier effects through export taxes using both partial and general equilibrium theoretical models, with the assertion that when food prices are high, consumers experience loss aversion and when prices are low producers experience loss aversion. Low food prices lead exporters to set export promotion measures that lower the world price and induce further support to exports. The government aimed to shield the citizens from large welfare losses by using the export policy measures to get domestic prices constant. The government intervenes by imposing an export tax. When large countries have an objective of constant food domestic prices, in the event of an increase in world agricultural prices the optimal response is to decrease import tariffs in net food-importing countries and to increase export tariffs in net food-exporting countries. The latter decision is welfare improving while the former is welfare reducing, while, the Smaller countries are harmed by both decisions.
Finally, the paper examines the export policy multiplier effect,...
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