Domestic Food Prices and the COVID-19 Pandemic: How Policies Helped and Hurt

Protectionist policies such as export restrictions are often used as an immediate response to spiking food prices and other food shocks, such as those posed by the COVID-19 pandemic. These policies are increasingly being recognized as detrimental to long-term global food security and can also have impacts for local food security, particularly for low-income and net food importing countries. However, a lack of real-time data makes it difficult for policymakers to see how these responses are truly impacting food markets within their countries. A recent article published in Food Policy examines how a new indicator, the monthly nominal rate of protection “express” or NRPx, can help policymakers and development practitioners monitor market responses to food security-related policies in near-real-time, making it easier to understand their impacts and develop policies to truly support food security in the face of crisis.  

The Food Policy study examines how domestic staple food prices changed compared to global prices from March 2020 to February 2022; it also looks at price movements in the three years prior to the outbreak of the COVID-19 pandemic. The authors utilized 39 case studies across 24 low- and middle-income countries (LMICs) for rice, wheat, maize, sorghum, and potatoes. The majority of the case studies came from Africa, Latin America and the Caribbean, and Asia and the Pacific. Only one case study for each staple food in any given country was used, and wholesale price data was used whenever possible. The authors also used data on primary outputs (e.g., whole wheat rather than wheat flour) when possible, and the lowest quality available of each commodity was considered, as it is these qualities more widely consumed by poor households. Finally, when national average prices were not available, the authors calculated an unweighted average price from all markets in the country or used prices from a single market if it were the only one available. UN Comtrade data and FAO MAFAP data were used to establish international benchmark prices: monthly national cost, insurance, and freight price for net food importing countries and free-on-board price for net food exporting countries.

The traditional NRP indicator measures the difference between domestic producer prices and an “international-equivalent” price that is undistorted by market failures or trade policies. NRPs are typically calculated annually due to the complexity and length of time needed for data collection. This time lag can limit the indicator’s usefulness in responding to imminent or ongoing food crises. The NRPx indicator utilized in the study, on the other hand, is a simplified version of the indicator that provides a more timely look at how markets are reacting to a shock like the COVID-19 pandemic; this more immediate data can help policymakers enact better informed policies that help mitigate the impacts of a shock without causing longer term food security challenges.

The study finds that policymakers often reacted to concerns over COVID-19’s impact on food markets by enacting domestic market and global trade policies and that these policies did in fact drive an increased gap between domestic and global agricultural commodity prices. Global commodity prices began to skyrocket in mid-2020 following the lifting of initial lockdowns; these increases were exacerbated by weather shocks (such as drought in several wheat-producing countries), rising fertilizer prices, agricultural labor shortages, and stockpiling of commodities in several key ports. In response to this rise in global prices, policymakers in the studied countries attempted to limit similar increases in domestic food prices by enacting new trade measures (either reducing exports or encouraging imports), releasing domestic food stocks, and encouraging increased domestic production. Policymakers’ actions can be broken down into five main categories: price control mechanisms, export restrictions, tariff reductions, support to domestic prices, and no policy implementation.

Use of the first three categories would be expected to result in a decline in monthly NRPx (thus, a decline in the gap between domestic and international prices) from the pre-COVID-19 period to the post-COVID-19 period; and in fact, from March 2020 through February 2022, the median change seen in monthly NRPx for all 24 countries and all studied staple crops was a decline of 20.3 percentage points, suggesting that these categories of policy actions were in wide use. Support to domestic prices, on the other hand, resulted in virtually no median change in monthly NRPx, while no policy implementation led to a median increase of around 14 percentage points.

So what does this mean for future food price shocks? The authors suggest that policymakers need to more carefully consider which policies they enact to protect domestic food security. The decline seen in NRPx for all studied staple crops, while protecting domestic consumers from price increases at least in the short term, could result in disincentives for domestic food production over time, which would lower food supplies and ultimately be more detrimental to domestic food security. The implementation of policies like export restrictions and export quotas can also lead to increased volatility in both global and domestic food prices, again posing challenges for long-term food security. More effective policies to protect domestic food security could include programs to help farmers increase their resilience to shocks, investments in enhanced and sustainable agricultural productivity, and increased targeted cash transfer programs to more immediately help both local consumers and local producers.

Regarding the new NRPx indicator itself, the authors do point out that the study countries are often not well integrated into global agricultural trade, which may have contributed to the gap between domestic prices and rising international prices. However, the consistency of the median decline seen across all studied countries and commodities suggests that NRPx does provide a useful mechanism for timely measurement of policies’ impact on markets and prices.