Fighting Global Food Price Rises in the Developing World:
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Fighting Global Food Price Rises in the Developing World: The Response of China and Its Effect on Domestic and World Markets. Jikun Huang, Jun Yang, Huanguang Qiu Center for Chinese Agricultural Policy (CCAP), CAS Scott Rozelle Stanford University.

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Fighting Global Food Price Rises in the Developing World:The Response of China and Its Effect on Domestic and World Markets

Jikun Huang, Jun Yang, Huanguang Qiu

Center for Chinese Agricultural Policy (CCAP), CAS

Scott Rozelle

Stanford University


Food price 2005 100 in the selected countries
Food price (2005=100) in the selected countries


What is behind these price rises reports in the media and briefs by policy analysts are confusing
What is behind these price rises? Reports in the media … and briefs by policy analysts .. are confusing

Biofuel boom…

Rise of China

Weak US dollar

Oil price and increasing freight rates

Crop failures


Global pressure on food prices and food supplies is causing rising concern in the world about the welfare and food security of many in developing countries … and is even being blamed for social and political unrest

Page 4


To ease the mounting pressures and to avoid the damage that food crisis could bring to China’s economy, officials called for the use of a broad spectrum of policy measures to counteract the price rise. Many actions were immediately taken.


Questions and overall goals of this presentation
Questions and Overall Goals of food crisis could bring to China’s economy, officials called for the use of a broad spectrum of policy measures to counteract the price rise. Many actions were immediately taken.This Presentation

  • What are the causes of the current rises in food prices?

  • Are the pressures for higher food prices being transmitted into developing countries (e.g., China)?

  • How are government’s responding?

  • Are the policy efforts to keep prices down effective?

  • What about the effect of these policies longer run on prices inside and outside of developing countries?

    Overall goal:

  • To try to help answer the questions raised above.


Rest of presentation
Rest of Presentation food crisis could bring to China’s economy, officials called for the use of a broad spectrum of policy measures to counteract the price rise. Many actions were immediately taken.

  • The Threat—Rising Prices in World Food Markets and Their Causes

  • China’s Leaders Respond

  • Impacts of China’s Countermoves

  • Discussion and Policy Implications



International prices for some selected commodities price of january 2005 100 measured by us
International Prices for Some Selected Commodities 1905-2005 (price of January 2005=100, measured by US$)


Sources of international food price changes 1905-2005

Source: Yang, Qiu, Huang, Rozelle (2008)


High food shares and integrated markets threat of inflation and rising concerns
High food shares and integrated markets: 1905-2005threat of inflation and rising concerns

  • On average, food still accounts for a large share of China’s total expenditures:

    • 36% in urban and 43% in rural in 2006

  • China’s agricultural market is highly integrated into world markets.


Nominal protection rates in china 1980 2005
Nominal protection rates (%) in China, 1980-2005 1905-2005

In absence a response by government, rising price internationally

could be expected to lead to higher prices domestically

Source: Huang, Yu, Rozelle and Martin (2008)


China s leaders respond
China 1905-2005’s Leaders Respond

  • Recognizing the threat, China took a series of steps between in 2007 and 2008 to try to counter the rising prices.


  • Major policies: 1905-2005

    • Sell grain stocks to free market traders;

    • Eliminate VAT rebate (13%) on the key agricultural commodities;

    • Restrict the outflow of China’s own cereal;

    • Sign long terms futures and forward contracts with grain (and meat) exporting countries;

    • Impose fertilizer export tax levies: 30%-35 in Feb 2008 and then 100% after mid-May;

    • Subsidies and insurance to farmers raising sows

    • Tightened monetary policy;

    • Adjust biofuels policy: Big initial plans; second thoughts.


Impacts of china s countermoves
Impacts of China’s Countermoves 1905-2005

  • Rice, wheat and maize Prices

    (Have means to operate in the short run)

  • Soybean prices

    (No much policy measures available in short run)

  • Pork prices

    (Little traded due to SPS and other NTBs)


No any means to force down prices in the short run: 1905-2005

No stock + about 60% domestic consumption is imported


Explaining the sources of price rises and effectiveness of china s policies in 2005 2008
Explaining the sources of price rises and effectiveness of China’s policies in 2005-2008

  • Methodology

  • Scenarios


Modified gtap e model
Modified GTAP-E model China’s policies in 2005-2008

  • Creating ethanol and diesel industry in the model

  • More detail agricultural commodities

    • Separating maize from coarse grain

    • Separating soybean from oilseeds

  • Adding the module to reflect the substitution between biofuel and gasoline

  • New extension: Taking into the by products of Biofuel (DDGs) into account


Scenario for 2005 2008
Scenario for 2005-2008 China’s policies in 2005-2008

  • Reference scenario (RF):

    • No changes in world oil price in 2005-2008

    • No expansion in world biofuel in 2005-2008

  • Two alternative scenarios:

    • Actual world oil price in 2005-2008

    • Actual world oil price +

      actual world biofuel production


Real crude oil prices us barrel in real 2005 price
Real crude oil prices China’s policies in 2005-2008(US$/barrel in real 2005 price)


Current and Projected Total Biofuels China’s policies in 2005-2008(bioethanol and biodiesel) Production in the Next 30 Years.

Source: Msangi, et al., 2007


Simulated china s food prices under difference scenarios in 2005 2008 2005 100
Simulated China’s food prices under difference scenarios in 2005-2008 (2005=100)

Wheat

Rice

Maize

Soybean


The combined impact of all of China’s policy responses (and other

factors except for oil price and biofuels) are captured by the residual.


Discussion and policy implications 1
Discussion and Policy Implications (1) (and other

  • China’s counter measures have helped keeping domestic grain prices from rising as they have on international markets and achieved its national grain security in the recent years.

  • However, this does not mean that such a set of policies is optimal for the world. When more than 30 countries, in addition to China, levied export assessments or prohibited traders from exporting from domestic markets into international markets, there seem no good global solution in the short run unless there would be a strong global/collection action.


Discussion and policy implications 2
Discussion and Policy Implications (2) (and other

  • Two further questions:

    • Can grain prices be suppressed indefinitely?

      Answer: No. Indeed farmers are shifting production from grain to edible oil crops. In the longer run it is inevitable that China will confront great pressures of rising grain price in near future.

    • Has China’s growth caused the recent rising food prices on international markets?


China has been a net food exporter during (and otherits rapid growing period in the past 3 decadesAgricultural export and import (billion US$), 1980-2006


China’s net export of rice, wheat and maize in 2005-2007 (and other

(1000 tons)

This means that at exactly the time that world food prices were taking off,

China was actually increasing shipments into international markets.


China’s net import soybean in 2005-2007 (and other

(1000 tons)

Only in soybeans, its imports did rise. Surely, a 15 percent rise

between 2005 and 2007 could not cause the world food crisis.


Real cereal price index all prices 100 in 1960
Real cereal price index (and other(All prices = 100 in 1960)

Biofuels will cause rise in food prices(unprecedented in last 100+ years), it could have huge effect on many parts of the population …

Biofuel era ?

Business

as usual


Discussion and policy implications 3
Discussion and Policy Implications (3) (and other

  • Needs to prepare to accept food price rises—as long as they are in an acceptable range. As agricultural prices rise, however, farmers will be stimulated to increase production. China’s current policies to limit the rise of food prices will not work in the long run.

  • The fundamental method to control rising food prices and maintain national food security will be realized by all efforts that will enhance investments in the agricultural sector.


Discussion and policy implications 4
Discussion and Policy Implications (4) (and other

  • Rising and sustained high food price should be looked on as an opportunity to stimulate the rural economy. They will help foster a strong agricultural sector.

  • It should be recognized that it is inevitable that there will be some consumers that get hurt. It is essential to construct (enhance) a social security system to provide the necessary support for vulnerable citizens.


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