Foodgrain price stabilization in developing countries : issues and experiences in Asia

This review summarizes current knowledge regarding the theory of price stabilization and its expected benefits. It stresses the need for extending the frontiers of the analytical framework to include macroeconomic, dynamic, and developmental aspects of price stabilization. Under the prevailing restrictive microlevel analysis of risk aversion, focusing on maximization of utility, the benefits of price stabilization are found to be modest, under varying assumptions relating to magnitudes of risk aversion. The authors focus on five Asian developing countries with wide experience in food price stabilization policies (Bangladesh, Indonesia, Pakistan, the Philippines, and Thailand). They evaluate the causes and consequences of instability in rice and wheat prices, distinguishing between import-substituting and exporting countries. In explaining why the degree of price stability achieved differed from country to country, they consider differences in the role of private trade in different countries" cereal markets, the efficiency of the public buffer stock agencies, and their access to financial resources. As countries raise their per capita income levels, diversify their economies, and liberalize their foreign trade and domestic output markets in the aftermath of the Uruguay Round, as the world cereal markets are liberalized and surplus stocks are reduced, they rethink the objectives of price stabilization and the appropriate measures for reducing the range of fluctuations in cereal prices. This review will contribute to the debate on the pros and cons of food price stabilization. Includes bibliography. (Author abstract)