Food price volatility and its consequences: introduction
Commodity prices are in the news. Oil prices have dropped 65% since June 2014. Metal prices are also down substantially, albeit they have declined more gradually since 2011 on account of slower growth from emerging markets that account for more than half of global metal consumption. In this special issue, we focus on food prices, which have in many ways a wider impact than oil prices. While international food prices are also down (see Fig. 1) this might not be all good news for consumers. One key difference between food and other commodities is that the share of food production that is effectively exported is relatively small. In other words, most food production is consumed domestically. This implies that international food prices may not translate closely into domestic food prices. Just how important are the links between international and domestic prices is a central theme in this special issue. Several papers in the issue deal with this question by documenting the 'weak links' between international and domestic food prices. For example, Furceri et al. present econometric evidence of very limited pass through both in advanced and emerging markets. The median long term pass through of a 1% food price shock to domestic food prices is 0.18% in advanced economies and 0.34% in emerging economies. They argue that as a significant fraction of domestic food production is consumed domestically, it is domestic agricultural and weather conditions that are the more influential, rather than global market developments. Other factors behind the incomplete pass through include the significant local component in the production of food, including market structure, taxes, and subsidies. Coping with (domestic) food price fluctuations is indeed high on the minds of people and policy makers. The 'weak links' between international and domestic prices ensure that we need to understand the sources of food price volatility within countries. In that vein, this special issue devotes considerable space to the understanding of the dynamic of domestic prices, including the emergence of bubbles (Araujo Bonjean and Simonet) and seasonality (Kaminski et al. The potential importance of high domestic food prices is shown by their possible linkage to riots (van Weezel) and the impact of seasonality on poverty outcomes. While many of the papers in this special issue have as their policy background the food prices hikes over the period 2008 11, longer term policy issues are important. Food prices remain volatile and weather conditions are creating mounting challenges for many countries around the world, particularly in Africa and Asia. Ethiopia is experiencing one of the worst droughts in decades. Strikingly, the two main rainy seasons supply over 80% of