Have recent increases in international cereal prices been transmitted to domestic economies? The experience in seven large Asian countries

Apr 2008

A key question is the extent to which changes in world market prices have been transmitted to domestic economies in recent years, especially for cereals. The extent of transmission is important for at least two reasons. First, it is domestic prices that affect the welfare of poor consumers and farmers, not world prices. Second, the magnitude of price transmission will help determine the extent to which adjustments by producers and consumers will stabilize world price movements. These adjustments (reduced consumption, increased production) will only take place if world prices are transmitted to domestic prices.
This short paper examines the extent to which increases in international cereal prices during the past few years have been transmitted to domestic prices for several large Asian countries. The focus is on rice, which is the staple food in these countries, accounts for a large share of the expenditures of the poor, and is also the most important agricultural crop in terms of area harvested. However, evidence on price transmission for wheat and maize are also presented. The paper examines also changes in both consumer and producer prices to see if these groups are being affected differently. Finally, some limited evidence on transmission of world fertilizer prices will also be analyzed because world urea prices have increased substantially and will have an effect on farm profitability if they are transmitted to farmers.

By: D. Dawe (FAO)

 
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