MARKETS AND DETERMINANTS OF FOOD PRICES - Food Security, Food Prices and Climate Variability - page 101

Price transmission is important for food security because food prices have long been char-
acterized by stickiness, or the likelihood that a price reduction spreads to the farm gate price
faster than a price increase, and an increase spreads to the retail price faster than a decrease
(Von Braun and Tadesse, 2012). Although recent movements in prices spread far faster than
in the past, in regions where infrastructure is poor or markets are isolated and not very com-
petitive stickiness may still be an important factor in price movements.
Table 5.2 shows some of the linkages and underlying transmission pathways between
global and local prices. There are many feedback loops that are not represented in the table,
for example the reduction in demand for a particular good due to the movement of large
portions of the population from the high priced, imported food to lower priced substitutes
that have different sources. The literature usually assumes “plausible linkages” between food
prices and impact, rarely including rigorous studies of actual households, their incomes and
individual measures of nutritional status with controls (Compton et al ., 2011). Thus many
feedback loops that actually exist are missing from this representation, and from a broader
understanding of the positive and negative impact of food price variation and level on nutri-
tion outcomes.
The impact of food prices on food security depends on livelihood strategy in the region
where the dynamics occur. Although rural households grow food, many farming families
have diversified their income sources, working in rural markets, livestock production, crafts
and wage labor markets (Abdulai and CroleRees, 2001). Although this has increased cash
income and to some extent has also improved the standard of living of these households, it
has also driven most subsistence farmers to be net purchasers of food from the market (Brown
et al ., 2009).
Consumers' responsiveness to changes in prices and in incomes depends on the size of the
changes - the larger the price change, the larger the response. In poor countries where the
proportion of income spent on food is high, this response to prices is far more significant than
in middle- and high-income countries. The responsiveness of food prices to demand was
measured in 114 countries and shows that food demand in low-income countries reduced
-0.59 whereas in high-income countries it was -0.27 (Seale et al ., 2003). Even when consum-
ers compensated for high food prices by increasing their income, their demand response to
high prices drops only slightly (ul Haq et al ., 2008). The implication for food security of
higher prices is thus significant and negative, particularly when food prices move unpredict-
ably (Von Braun and Tadesse, 2012).
Impact of international commodity prices on local food prices
The analyses reviewed above regarding the impact of global prices on local food prices focus
almost entirely on internationally traded goods. This makes a great deal of sense, since there
is a lot more information for these commodities, they are comparable across markets and the
value of the goods is well known. Unfortunately, in food insecure communities, few poor
people can afford to eat wheat or rice imported from halfway across the world. The poorest
people in the poorest countries eat the least expensive food that provides the most calories,
many of which are grown locally, such as cassava, millet, sorghum, cowpeas and peanuts. To
understand the impact of high food prices on the food security of these very poor people, we
really need to know the impact of global prices on the prices of these locally grown foods. If
these local food prices are controlled by variations in the global food system, then it is likely