We study the relationship between global agricultural value chains (GAVCs) and food prices. Using longitudinal data on a sample of 138 countries for the period 2000 to 2015 and a Bartik shift-share instrumental-variable design, we study how participation in GAVCs at the country level relates to consumer food price levels and volatility. We find that participation in GAVCs is associated with a decrease in consumer food price levels and an increase in food price volatility, suggesting that participation in GAVCs involves a mean-variance trade-off. This trade-off is more pronounced among low-income countries, especially sub-Saharan African countries. We show that association between participation in GAVCs and food price volatility is likely due to a lack of diversification among suppliers, which can be expressed as an externality from the profit-maximization behavior of individual firms. Decomposing participation in GAVCs into upstream and downstream linkages, we find that food price volatility is associated more strongly with downstream participation than with upstream participation. We explore some policy options aimed at increasing the resilience of GAVCs.
This paper estimates the food supply elasticity in SSA. Building up on commodity storage theory, we empirically estimate food supply functions for SSA. Our identifications strategy relies on exogenous weather shocks as instruments. This approach further allows to quantify the exposure of SSA food markets to weather events. We use data from FAO, USDA, WFP and public climate data to model 3 commodities in 173 food markets in 34 countries in SSA. Results suggest that (i) food supply in SSA is more elastic than global food supply, and (ii) prices are much more subject to exogenous weather events than global prices are. Moreover, we find substantial heterogeneity of food market responses to weather shocks and price developments by crops. These results are in line with commodity storage theory as in absence of opportunities to build inventories, producers will not shift supplies across time periods. Promoting storage activity-also through imports-and investing in storage facility can smoothen consumption, stabilize markets and reduce long term production uncertainty in the region.
Oil palm remains an important source of rural income in South East Asia. At the same time, Indonesia has become a hotspot for large-scale species extinction and a loss of biodiversity in favour of agricultural production. The present study sets out to assess the environmental performance of smallholder oil palm production with respect to biodiversity. Using a panel dataset that combines conventional farm data together with an account of plant diversity, we estimate a restricted hyperbolic environmental distance function. We integrate loss of biodiversity as an undesirable output into the production model which allows explaining shortfalls in environmental performance and the derivation of shadow prices of biodiversity conservation. We find a substantial environmental inefficiency, which is partly explained by both chemical and manual weeding practices, highlighting the potential for improvements in both the environmental and the economic dimension. Moreover, the value for conserving one species of the average biodiversity on a farmers plantation was $340$ USD in 2018. Payments for ecosystem services schemes could be a viable policy response to conserve meaningful levels of biodiversity while simultaneously allowing smallholders to increase palm oil output. In general, addressing drivers of environmental performance in PES designs amplifies its effect without reducing production levels.