Why stable food prices are a good thing: Lessons from stabilizing rice prices in Asia

This paper describes the benefits and costs of managing food price instability in the context of promoting economic growth and poverty reduction in order to improve food security. Some key costs of stabilizing domestic food prices include disruption of international markets, crowding out of private traders if government procurement is too large or destabilizes expectations, and large financial costs if the gap between domestic and world prices is too large, although a well-run program need not incur most of those costs. In poor countries, stable staple food prices help prevent poor farmers and consumers from falling into poverty traps, promote farm-level investment, and encourage investment throughout the economy by reducing the “noise” in prices of other goods and by promoting social and political stability. Because of these benefits, domestic rice price stabilization has been an integral part of the development vision in Asia.

► Stable food prices help poor farmers and consumers avoid poverty traps. ► Stable food prices promote investment and growth in poor countries. ► Stable rice prices have been part of a strategic development vision in Asian countries. ► Cost-effective food price stabilization is challenging to implement, but feasible.