Optimal food price stabilization in a small open developing country

In poor countries, most governments implement policies aiming to stabilize the prices of staple foods, which often include storage and trade measures insulating their domestic market from the world market. It is of crucial importance to understand the precise motivations and efficiency of those interventions, because they can have consequences worldwide. This paper addresses those issues by analyzing the case of a small, open developing country confronted by shocks to both the crop yield and foreign price. In this model, government interventions may be justified by the lack of an insurance market for food prices. Considering this market imperfection, the authors design optimal public interventions through trade and storage policies. They show that an optimal trade policy largely consists of subsidizing imports and taxing exports, which benefits consumers at the expense of producers. Import subsidies alleviate the non-negativity of food storage. In other words, when stocks are exhausted, subsidizing imports prevents domestic price spikes. One striking result: an optimal storage policy on its own is detrimental to consumers, since its stabilizing benefits leak into the world market and it raises the average domestic price. By contrast, an optimal combination of storage and trade policies results in a powerful stabilizing effect for domestic food prices.Markets and Market Access,Economic Theory&Research,Emerging Markets,Access to Markets,Trade Policy

Stochastic Viability of Second Generation Biofuel Chains: Micro-economic Spatial Modeling in France

Within an overall project to assess the ability of the agricultural sector to contribute to bioenergy production, we set out here to examine the economic and technological viability of a bioenergy facility in an uncertain economic context, using the stochastic viability approach. We consider two viability constraints: the facility demand for lignocellulosic feedstock has to be satisfied each year and the associated supply cost has to be lower than de profitability threshold of the facility. We assess the viability probability of various supplying strategies consisting in contracting a given share of the feedstock demand with perennial dedicated crops at the initial time and then in making up each year with annual dedicated crops or wood. The demand constraints and agricultural prices scenarios over the time horizon are introduced in an agricultural and forest biomass supply model, which in turns determines the supply cost per MWh and computes the viability probabilities of the various contract strategies. A sensibility analysis to agricultural prices at initial time is performed. Results show that when they are around or under the median (of the 1993–2007 prices), the strategy consisting in contracting 100% of the feedstock supply with perennial dedicated crops is the best one.Biofuel, Biomass production, Spatial economics, Stochastic viability, Monte Carlo simulation, Resource /Energy Economics and Policy,

Interest Rate Dynamics and Commodity Prices

Monetary conditions are frequently cited as a significant factor influencing fluctuations in commodity prices. However, the precise channels of transmission are less well identified. In this paper, we develop a unified theory to study the impact of interest rates on commodity prices and the underlying mechanisms. To that end, we extend the competitive storage model to accommodate stochastically evolving interest rates, and establish general conditions under which (i) a unique rational expectations equilibrium exists and can be efficiently computed, and (ii) interest rates are negatively correlated with commodity prices. As an application, we quantify the impact of interest rates on commodity prices through the speculative channel, namely, the role of speculators in the physical market whose incentive to hold inventories is influenced by interest rate movements. Our findings demonstrate that real interest rates have nontrivial and persistent negative effect on commodity prices, and the magnitude of the impact varies substantially under different market supply and interest rate regimes

Could conservative iron chelation lead to neuroprotection in amyotrophic lateral sclerosis?

Iron accumulation has been observed in mouse models and both sporadic and familial forms of Amyotrophic lateral sclerosis. Iron chelation could reduce iron accumulation and the related excess of oxidative stress in the motor pathways. However, classical iron chelation would induce systemic iron depletion. We assess the safety and efficacy of conservative iron chelation (i.e. chelation with low risk of iron depletion) in a murine preclinical model and pilot clinical trial. In Sod1G86R mice, deferiprone increased the mean life span as compared with placebo. The safety was good, without anemia after 12 months of deferiprone in the 23 ALS patients enrolled in the clinical trial. The decreases in the ALS Functional Rating Scale and the body mass index (BMI) were significantly smaller for the first 3 months of deferiprone treatment (30 mg/kg/day) than for the first treatment-free period. Iron levels in the cervical spinal cord, medulla oblongata and motor cortex (according to MRI), as well as cerebrospinal fluid levels of oxidative stress and neurofilament light chains were lower after deferiprone treatment. Our observation leads to the hypothesis that moderate iron chelation regimen that avoids changes in systemic iron levels may constitute a novel therapeutic modality of neuroprotection for ALS

Comparing numerical methods for solving the competitive storage model

This paper compares numerical methods for solving the competitive storage model. Since storage implies an inequality constraint, the solution methods must be considered carefully. The model is solved using value function iteration, and several projection approaches, including parameterised expectations and decision rules approximation. Using a penalty function approach to smooth the inequality constraint, perturbation methods are also applied. Parameterised expectations proves the most accurate method, while perturbation techniques are shown inadequate for solving this highly nonlinear model. The endogenous grid method allows rapid solution if supply is assumed to be inelastic

Optimal food price stabilisation policy

Classification JEL : D52; Q11; Q18This paper proposes a framework for designing optimal food price stabilisation policies in a self-sufficient developing country. It uses a rational expectations storage model with risk-averse consumers and incomplete markets. Government stabilises food prices by carrying public stock and by applying a state-contingent subsidy/tax to production. The policy rules are designed to maximise intertemporal welfare. The optimal policy under commitment crowds out all private stockholding activity by removing the profit opportunity from speculation. The countercyclical subsidy/tax to production helps price stabilisation by subsidising production in periods of scarcity and by taxing it in periods of glut. It contributes little to welfare gains, most of which come from stabilisation achieved through public storage.Cet article propose un cadre d'analyse de politique optimale de stabilisation des prix alimentaires dans un pays en développement auto-suffisant. Il utilise un modèle de stockage à anticipations rationnelles avec des consommateurs averses au risque et des marchés incomplets. Le gouvernement stabilise les prix alimentaires par du stockage public et en appliquant une règle contingente de subvention/taxe à la production. Les règles de décision publique sont conçues pour maximiser le bien-être. La politique optimale avec engagement de l'état évince toute activité de stockage privé du fait qu'elle réduit les opportunités de profit spéculatif. La subvention/taxe contracyclique à la production aide à la stabilisation des prix en subventionnant la production en période de rareté et en la taxant en période d'abondance. Elle contribue peu aux gains de bien-être, qui proviennent majoritairement de la stabilisation apportée par le stockage public

Trade Policy Coordination and Food Price Volatility

Many countries adjust their trade policies countercyclically with food prices, to the extent that the use by numerous food exporters of export restrictions has occasionally threatened the food security of food importing countries. These trade policies are inconsistent with the terms-of-trade motivation often retained to characterize the payoff frontier of self-enforcing trade agreements, as they can worsen the terms of trade of the countries that apply them. This paper analyzes trade policy coordination when trade policies are driven by terms-of-trade effects and a desire to reduce domestic food price volatility. This framework implies that importing and exporting countries have incentives to deviate from cooperation at different periods: the latter when prices are high and the former when prices are low. Since staple food prices tend to have asymmetric distributions, with more prices below than above the mean but with occasional spikes, a self-enforcing agreement generates asymmetric outcomes. Without cooperation, an importing country uses more frequently its trade policy because of the concentration of prices below the mean, but an exporting country has a greater incentive to deviate from a cooperative trade policy because positive deviations from the mean price are larger than negative ones. Thus, the asymmetry of the distribution of commodity prices can make it more difficult to discipline export taxes than tariffs in trade agreements

Food price volatility and domestic stabilization policies in developing countries

When food prices spike in countries with large numbers of poor people, public intervention is essential to alleviate hunger and malnutrition. For governments, this is also a case of political survival. Government actions often take the form of direct interventions in the market to stabilize food prices, which goes against most international advice to rely on safety nets and world trade. Despite the limitations of food price stabilization policies, they are widespread in develop-ing countries. This paper attempts to untangle the elements of this policy co-nundrum. Price stabilization policies arise as a result of international and do-mestic coordination problems. At the individual country level, it is in the na-tional interest of many countries to adjust trade policies to take advantage of the world market in order to achieve domestic price stability. When countercy-clical trade policies become widespread, the result is a thinner and less reliable world market, which further decreases the appeal of laissez-faire. A similar vi-cious circle operates in the domestic market: without effective policies to pro-tect the poor, such as safety nets, food market liberalization lacks credibility and makes private actors reluctant to intervene, which in turn forces govern-ment to step in. The current policy challenge lies in designing policies that will build trust in world markets and increase trust between public and private agents

Modeling commodity markets in stochastic contexts: A practical guide using the RECS toolbox version 0.5

This document describes the RECS toolbox and also several applications of this modeling framework to commodity markets related issues. It assumes basic knowledge of Matlab, and of dynamic economic models (see Adda and Cooper, 2003, for an introduction). Storage models are presented in brief; for more information please refer to the original papers or to Williams and Wright (1991), which provide detailed descriptions of many of these models.Non-PRIFPRI1; AGRODEPMTI

Food price volatility and domestic stabilization policies in developing countries

When food prices spike in countries with large numbers of poor people, hunger and malnutrition are very likely to result in the absence of public intervention. For governments, this is also a case of political survival. Government actions often take the form of direct interventions in the market to stabilize food prices, which goes against most international advice to rely on safety nets and world trade. Despite the limitations of food price stabilization policies, they are widespread in developing countries. This paper attempts to untangle the elements of this policy conundrum. Price stabilization policies arise as a result of international and domestic coordination problems. At the individual country level, it is in the national interest of many countries to adjust trade policies to take advantage of the world market in order to achieve domestic price stability. When countercyclical trade policies become widespread, the result is a thinner and less reliable world market, which further decreases the appeal of laissez-faire. A similar vicious circle operates in the domestic market: without effective policies to protect the poor, such as safety nets, food market liberalization lacks credibility and makes private actors reluctant to intervene, which in turn forces government to step in. The current policy challenge lies in designing policies that will build trust in world markets and increase trust between public and private agents.Lorsque les prix alimentaires flambent dans des pays avec un grand nombre de personnes pauvres, en l'absence d'intervention publique la faim et la malnutrition sont très probables. Pour les gouvernements, intervenir est aussi une question de survie politique. Les interventions publiques prennent souvent la forme d'interventions sur le marché pour stabiliser les prix, ce qui va à l'encontre de la plupart des recommandations internationales, qui sont plutôt d'utiliser des filets de sécurité sociaux et de laisser le marché fonctionner librement. Cependant, malgré les limites des politiques de stabilisation des prix alimentaires, elles sont très répandues dans les pays en développement. Ce chapitre s'attache à éclairer cet état de fait. Les politiques de stabilisation des prix émergent comme le résultat de problèmes internationaux et domestiques de coordination. Il est dans l'intérêt de nombreux pays d'ajuster leurs politiques commerciales pour utiliser le marché mondial à des fins de stabilisation domestique. Mais, lorsque ces politiques commerciales se généralisent, le résultat est un marché mondial plus étroit et moins fiable, ce qui diminue d'autant l'attrait du libre-échange. Un cercle vicieux similaire opère sur le marché domestique. En l'absence de politiques à même de protéger les pauvres efficacement, comme des filets de sécurité sociaux, la libéralisation des marchés alimentaires manque de crédibilité, ce qui rend les acteurs privés réticents à s'investir, poussant les gouvernements à intervenir. L'enjeu politique actuel est donc de proposer des politiques qui permettent d'améliorer les confiances dans les marchés mondiaux et entre les acteurs privés et publics