Commodity market instability and asymmetries in developing countries: Development impacts and policies

Symposium organized by the Ferdi with Alexandros Sarris, Professor at the University of Athens and Senior Fellow Ferdi.

Background and motivation

Economic market instability has been at the center of development policy debate in the recent past, starting with the food commodity prices spikes on 2007-8, then continuing with the 2009-10 financial crisis, the ongoing energy market volatility, and the continuing commodity market instability of the last few years. Natural but also economic disasters have left large economic losses. The International Fund for Agricultural Development (IFAD) Rural Poverty Report of 2011 emphasized the importance of addressing risk for rural development, and the latest World Bank World Development Report of 2014 (WDR) highlighted that there is substantial evidence that recognizing and preparing for risk can pay off in terms of development and growth. The main message of the WDR of 2014 was that individuals and institutions in developing countries as well as donors should move from being “crisis fighters” to becoming “proactive and systematic risk managers”, and this because protecting hard-won development gains by building resilience to risk is essential to achieving prosperity.

Risk, defined as exposure to uncertain future events, is part of everyday life, and people and countries have learned to deal with it over centuries. However, there is a growing realization that uncertainty and risk maybe crucial to a country’s growth and development as well as its welfare. Sudden and unanticipated shocks, whether caused by natural events, or economic developments affect developing countries, as well as poor people in unequal ways.  Commodity market risks in particular are well known to affect development and welfare in a variety of ways and it is important to understand these so as to prioritize policy actions, and to design strategies to avoid the undesirable parts of the consequences. In particular commodity market shocks may have both asymmetric patterns and  asymmetric impacts, namely differing in booms and busts, or create irreversibilities that may hamper subsequent development. While considerable research has taken place in the past to understand the influences of commodity market shocks, asymmetries and irreversibilities have not been studied much. It is to this general topic that the workshop is addressed.

Workshop purpose and themes

The general purpose of the workshop is on the one hand to examine the state of the art in the area of asymmetries and irreversibilities relating to commodity market instability and development, with the purpose to first pinpoint gaps in current research, and secondly to highlight promising areas of policy intervention to aid developing countries to manage/cope with market instability. As the topic is very large, and impossible to cover in all of its various aspects, the workshop will restrict its proceedings to a set of specific themes that are judged to have been underemphasized in previous empirical and policy development economics research. While commodity market instability can originate in many ways, the workshop will be restricted to market instability arising from natural or other unpredicted events, as well as unforeseen market developments.

We would like to thank l’Université d’Auvergne, the Cerdi and the Programme “Investissement d’avenir” for their support.

Cet atelier visera tout d’abord à examiner l’état actuel des connaissances sur les asymétries et les irréversibilités relatives à l’instabilité du marché des matières premières et au développement. Il en identifiera ensuite les lacunes et déterminera comment les interventions politiques peuvent aider les pays en développement à gérer l’instabilité des marchés. Le sujet étant très vaste et impossible à aborder dans sa totalité, l’atelier s’en tiendra à un ensemble de thèmes spécifiques jusqu’alors peu étudiés dans les travaux empiriques menés sur l’économie politique du développement. Même si l’instabilité du marché des matières premières peut avoir de multiples causes, l’atelier se limitera à celle provoquée par des phénomènes naturels, des événements imprévisibles ou des évolutions imprévues du marché. 

Nous remercions l’Université d’Auvergne, le Cerdi et le Programme “Investissement d’avenir” pour leur aide.

Wednesday June 24 / Mercredi  24 Juin

9.00 – 9.15   

Welcoming remarks, Patrick Guillaumont , Président de la Ferd   

Session 1 :The setting and problematique

Chair: Will Martin, IFPRI

9.15 – 10.15  

Introduction, background, and purpose of workshop

Commodity market instability and development. Issues and policies, Alexandros Sarris, National and Kapodistrian University of Athens, Grèce, et Ferdi

Discussion générale

10.15 - 10.30   

Coffee break

Session 2: Trends and asymmetries in market instability

Chair: Will Martin, IFPRI

10.30 - 12.15

Evolution of commodity market instability

Evolution and patterns of global commodity market instability, Christopher Gilbert, SAIS Bologna Center, Johns Hopkins University

Asymmetries in commodity price behavior, Atanu Ghoshray, Newcastle University Business School

Discussion: Catherine Simonet, Overseas Development Institute

12.15-13.30 Lunch break 

Session 3: Afternoon session. Asymmetries and distortions

13.30 – 15.15  

Instability, asymmetries, and market distortions

Trading-off Volatility and Distortions? Food Policy During Price Spikes, Johan Swinnen, University of Leuve

Price transmission and asymmetric adjustment: the case of three West African rice markets, Stéphanie Brunelin, Consultant, Banque mondiale

Discussion: Michiel Keyzer, Vrije Universiteit, Amsterdam

15.15 - 15.30  

Coffee break

15.30 – 17.15  

The nature of market instability in developing countries

On farm storage and asymmetric price shocks, Elodie Maitre D'Hotel, CIRAD Burkina Faso

Food Price Volatility in Landlocked countries, Friederike Greb and George Rapsomanikis, FAO, Rome

Discussion: Catherine Araujo-Bonjean, Cerdi

17.15 - 18.00 

General Discussion

Thursday June, 25 / Jeudi 25 Juin Session 4: Impacts of commodity market instability

Chair: Johan Swinnen, University of Leuven

09.00 - 10.45

Commodity instability and impacts on developing country households

Food prices and household welfare in West Africa: A pseudo panel approach, Zacharias Ziegelhofer, UNECA

Experimental Evidence on Attitudes to Price Uncertainty, Marc Bellemare, University of Minnesota, USA

Discussion: Alexandros Sarris, National and Kapodistrian University of Athens, Greece, et Ferdi

10.45 - 11.00 Coffee break 

11.00 - 12.45

Commodity market instability and social impacts

Food price shocks-induced poverty traps. Analysis using a panel dataset from Uganda, Adamon Mukasa, University of Trento

Social consequences of market instability: Asymmetry matters, Patrick Guillaumont et Joel Cariolle, Ferdi

Discussion: Sara Savastano, Université de Rome II, Tor Vergatta  12.45 - 14.00 Lunch break 

Session 5: Policies addressing commodity market instability

Chair: Alexandros Sarris, National and Kapodistrian University of Athens, Greece, et Ferdi

14.00–15.40 

Market instability and developing country policies

Price insulation and poverty impacts of market instability, Will Martin, IFPRI

Food Price Volatility in Developing Countries: The role of trade and storage, Lukas Kornher, Center for Development Research, University of Bonn

Discussion: Franck Galtier, CIRAD

Comments on “Price insulation and poverty impacts of market instability” Kym Anderson, Maros Ivanic and Will Martin 

15.45 - 16.00

Coffee break

16.00–17.45 

Policy recommendations on commodity market instability and development

Trade policy coordination and food price volatility, Christophe Gouel, INRA, Economie Publique, et CEPII

Consistency between Theory and Practice in Policy Recommendation by International Organizations for Extreme Price and Extreme Volatility Situations, Maximo Torero, IFPRI

17.45–18.15 

Open discussion and lessons learned

18.15 

Closing remarks and end of workshop