Trade policy responses to food price crisis and implications for existing domestic support measures: the case of China in 2008

TY - JOUR

T1 - Trade policy responses to food price crisis and implications for existing domestic support measures

T2 - the case of China in 2008

AU - Yu, Wusheng

AU - Jensen, Hans Grinsted

N1 - Published online 16 December 2013

PY - 2014/6/20

Y1 - 2014/6/20

N2 - Many national governments around the world applied export restrictions in order to achieve domestic market stabilization during the 2007/8 world food price crisis. However, current literature says little about how these export restrictions interact with existing domestic support measures in jointly determining domestic market outcomes. This paper analyzes this interaction by providing a quantitative assessment on how increased spending on agricultural domestic support in China offset the negative effects on grain production caused by the country's export restrictions and how these two types of measures jointly moderated rises of domestic grain prices. In particular, domestic and trade measures on key agricultural inputs such as fertilizers are shown to contribute significantly to expand grain outputs and reduce domestic market prices. While the short-term goal in stabilizing domestic grain prices was achieved through these measures, large fiscal and efficiency costs were incurred, especially considering how the short-term export restrictions seemingly necessitated the extra spending on input-based domestic subsidies. We also demonstrate that the costs to China and the rest of the world of these complicated policy interventions may be partially avoidable with a simpler and less distorting instrument.

AB - Many national governments around the world applied export restrictions in order to achieve domestic market stabilization during the 2007/8 world food price crisis. However, current literature says little about how these export restrictions interact with existing domestic support measures in jointly determining domestic market outcomes. This paper analyzes this interaction by providing a quantitative assessment on how increased spending on agricultural domestic support in China offset the negative effects on grain production caused by the country's export restrictions and how these two types of measures jointly moderated rises of domestic grain prices. In particular, domestic and trade measures on key agricultural inputs such as fertilizers are shown to contribute significantly to expand grain outputs and reduce domestic market prices. While the short-term goal in stabilizing domestic grain prices was achieved through these measures, large fiscal and efficiency costs were incurred, especially considering how the short-term export restrictions seemingly necessitated the extra spending on input-based domestic subsidies. We also demonstrate that the costs to China and the rest of the world of these complicated policy interventions may be partially avoidable with a simpler and less distorting instrument.

U2 - 10.1017/s1474745613000335

DO - 10.1017/s1474745613000335

M3 - Journal article

SN - 1474-7456

VL - 13

SP - 651

EP - 683

JO - World Trade Review

JF - World Trade Review

IS - 4

ER -