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The Impact of Rising Food and Fuel Prices - Essay Example

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The tremendous increase in food prices has affected even resource-rich countries such as Venezuela and Russia. Venezuela had a short supply of staple food in 2008. Russia also had a food shortage prior to its parliamentary election. Both governments responded to the price increases by imposing controls on food prices…
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The Impact of Rising Food and Fuel Prices
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"The Impact of Rising Food and Fuel Prices"

Download file to see previous pages The rising trend in international food prices persisted and accelerated in 2008. U.S. wheat export prices skyrocketed from $375/ton in January to $440/ton in March. Thai rice export prices chalked up from $365/ton to $562/ton.
The governments of the developed and developing countries adopted various mitigation measures. Specific policy interventions were applied in three broad categories: (i) interventions to assure household food security by establishing food safety nets; (ii) interventions to lessen domestic food prices by way of penalty or administrative action, and (iii) interventions to develop supplies and production of longer-term food supply. Given the three categories of policies there are preferred options that are more reliable and equitable. The best options to address food insecurity is the targeted cash transfers to vulnerable groups. Cash transfers increase the purchasing power of the poor without changing the chain of incentives that are available to produce more food and without reducing the incomes of poor food sellers. The depth, targeting efficiency and value of the transfer programs depends on the country's level of development.
Another set of best options to decrease domestic prices cover the lowering of tariffs and other government taxes on key staples. Many countries impose tariffs on food imports so as to foster domestic production and produce reliable revenues. During a period of increasing prices, the consequent reductions in tariffs and taxes presents a measure of relief to existing consumers at a limited fiscal cost. The subsequent revenue loss arising from the reduction of the tariffs is very important and the fiscal result of implementing this with extra social protection expenditures can require cutbacks in less priority areas. Approximately twenty-four out of fifty-eight countries under study have recently reduced import duties and Value Added Taxes in the phenomenon of rising food prices. Others developing countries, such as the Philippines, implemented a regime of high tariffs to protect domestic food producers and manufacturers.
Other countries utilize a policy of implementing a bread or grain subsidies specifically targeted to the poor to handle household food insecurity. In some cases, the introduction of consumer subsidies for staples after the recent rise in food prices. The Government of Yemen provided wheat in public markets at subsidized rates following a rise in food prices. In 2008, the Government of Pakistan implemented a ration card system to distribute subsidized wheat. These measures can be made permanent given the persistent food increase which results in high fiscal costs. Moreover, if the application of all the consumer subsidies are countered by specific measures to keep producer prices low, this can be counterproductive in the end. The one exception to this situation is when price controls are introduced as a temporary measure and are deemed important in terms of a higher social goal. In these exceptional cases, the risks of entrenchment will be minimized.
For countries that are grain exporters, there exist political exigencies to ban or tax grain exports in high price years. Some of these countries have fullly applied these methods. These policies tend to have a limited impact on domestic price levels and a relatively negative effect on ...Download file to see next pagesRead More
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