I read an interesting paper produced by
OECD recently, Policy Responses in
Emerging Economies to International Agricultural Commodity Price Surges
(2010), which examined short-term policy responses to the 2006-08 rise in
commodity prices and analyzed their effectiveness in meeting policy objectives.
This is particularly relevant today as cotton prices soar to all times high.
Changes in trade flows, price transmission, inflation, consumption and
production were also examined.
Overall, the study found that focused
safety nets were best at sheltering poor households without disrupting the
market, including creating negative price signals to farmers. An added benefit
was that the conditions of the safety net could be adjusted as prices rose and
fell, allowing greater flexibility over other interventions.
The researchers categorized government
short-term policy responses into four types:
1. Market interventions to limit the rise in food prices
2. Market interventions to control inflation
3. Assistance to consumers through safety nets
4. Support to producers
The study found that most countries tried
to limit the rise in food prices by directly affecting the price or increasing
the supply of commodities by removing tariffs, increasing export taxes or
reducing export price incentives. These usually reinforced existing policy
themes and aligned with longer-term policy frameworks and objectives such as
food security.
Export restrictions (e.g. bans, taxes,
reduction in rebates) were found to significantly reduce exports of the covered
commodities; however, these and other direct government interventions were not
always effective in suppressing domestic price pressure. Additionally possible
negative impacts included depression in prices discourage farmers from
replanting the targeted crops.
OECD promotes shifting from outdated
subsidies towards more progressive programs aimed at achieving its economic
growth and poverty reduction targets. Traditional subsidies can distort
consumption behavior and negatively influence policy decisions by keeping the
cost of resources artificially low. Many developing countries will need to
invest in their infrastructures to achieve the economic growth they aim to achieve.
Shifts towards programs that lift
restrictions on foreign investments, improve access to land, improve
enforcement of competition rules and cutting red tape. Progressive programs
such as public-private partnerships will also be needed to make any significant
headway on infrastructural improvements.
It is, however, worth noting that opportunities to secure funding
through these public-private partnerships will likely be increased if more
progressive investments that promote better agricultural practices, protection
of ecosystems and provide basic worker protection as many funders are
incorporating these criteria into program requirements.
Question
Are there measures that the cotton
industry should be taking to strengthen governance in times of such price
volatility?
