Regional Trade and Food Price Stabilisation in South Asia: Policy Responses to the 2007-08 World Price Shocks

Paul A. Dorosh


World price shocks and disruptions in international cereal
trade in 2007 and 2008 caused considerable anxiety and hardship for food
importing countries throughout the world. In many countries, high
international food prices raised import costs, reduced total supplies
for consumers and ultimately led to lower real incomes and food
consumption for poor households. In South Asia, Pakistan, Afghanistan,
Bangladesh and India were all affected by these movements in
international prices, though the effects on domestic prices in each case
was mitigated or exacerbated by each country’s own trade policies, as
well as the trade policies of its neighbours. Prior to 2007, the general
consensus among most economists and food policy analysts was that
openness to international trade, particularly private sector trade, was
the most efficient mechanism for stabilising domestic food prices and
supplies. In light of the 2007-08 experience, however, many observers
have concluded that international markets cannot be trusted and that
countries should rely on their own domestic production to ensure
national and household food security. This paper argues that liberalised
international trade still provides the best mechanism for stabilising
prices and food supplies in most years, but that appropriate contingency
policies are needed for years in which international prices are
extraordinarily high.1 More explicit commitments to cereal trade
liberalisation within South Asia would also promote region-wide food
security and help avoid a repetition of supply disruptions that raised
food prices sharply in Afghanistan and Bangladesh. Section II of this
paper briefly

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