National and International Policies toward Food Security and Price Stabilization
Developing countries are justifiably concerned about year-to-year variations in food grain production, inside and outside their boundaries. For large segments of the population who live at the margin of adequate nutrition, short food supply and high food prices mean curtailment of consumption to unacceptably low levels. High food prices lead to upward pressure on wages and have other undesirable macro-economic consequences. Low food prices can erode farmers' incomes and adversely affect future production. High international prices may cause serious balance-of-payments problems for food importing countries. To cope with the problems of instability within the framework of the market system, a country can use a range of policy instruments that may be divided into three categories: operating buffer stocks, adjusting foreign trade, and implementing price subsidy and support programs for specific groups and sectors. However, each policy or combination of policies while having a desirable effect on one objective may have an undesirable effect on other objectives. In addition, some programs cannot be implemented effectively without drawing on resources beyond the means of most developing countries. In this paper we analyze the effectiveness of intervention policies in the national and the international food grain markets in achieving prespecified stabilization goals. The study is based on simulation experiments with a model of a developing economy, with parameters chosen to approximate orders of magnitude of a country like India. I
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