PRICE VOLATILITY IN FOOD AND AGRICULTURAL MARKETS: POLICY RESPONSES
– 45
and food insecurity. They also hinder the development of the sector. Smallholders seek to minimize their exposure to price shocks through a variety of risk management strategies, including crop and income diversification, and they attempt to develop self-insurance by smoothing consumption. Diversification can however inhibit efficiency gains from specialization in production, hindering smallholders‟ market integration and, more broadly, the development of the sector. Moreover, price risks discourage the adoption of technologies necessary for production efficiency, as producers may decide to apply less productive technologies in exchange for greater stability. 5. All recommendations put forth in the report also have relevance for smallholders in developing countries. The AMIS initiative (section 4.1) can support better capacity to collect and analyze agricultural market data in developing countries and better informed policymaking at the national and regional levels, with positive impact on smallholders. Smallholders are part of the private sector whose production trends and stocks need to be increasingly factored into data collection and analysis, hence it is important to gradually develop mechanisms that will make it possible to better involve them – through their organizations – in the process. 6. Better functioning of futures markets can have indirect impact on smallholders by mitigating international price volatility. In some countries, farmers are able to use derivatives as hedging tools, but in most cases this is beyond the reach of smallholders due to costs, poor access to information, the nature and quality of crops produced by smallholders, and other. How to make access to well-functioning futures markets a risk-management option for more smallholders in the future, particularly for organizations and groups of producers, is a challenge that requires research and innovation. 7. Progress on DDA negotiations and reduction of trade distorting domestic support is of major relevance for smallholders in many countries. Smallholder producers often face unfair competition on domestic markets from artificially low-priced imports, or artificially high costs in accessing international markets, due to trade distorting policies in their own countries or elsewhere. Progress on this recommendation is critical to enable smallholders to play a greater role in supplying growing urban markets in their countries, as well as in regional and international markets. This can contribute not only to greater food security (in terms of both availability and access to food), but also to deepening agricultural markets, thus reducing the incidence of volatility. 8. Improving biofuel policies also has important implications for smallholders. Of particular relevance is that renewable fuels and feedstocks should be produced where it is socially, as well as environmentally and economically feasible to do so. Smallholders can benefit from biofuel production as a source of income and a source of energy at the farm and community levels. However, investments in biofuel production have in some cases taken place in ways that have undermined the natural resource entitlements and livelihoods of smallholders – including those whose livelihoods depend on common property resources, thus contributing to food insecurity and vulnerability. 9. Food emergency reserve systems also have implications for smallholders as food producers and as a large part of the food insecure. Leveraging and targeting local purchases of food by multilateral agencies towards smallholders, including women, can provide a way of integrating smallholders into markets and enabling them to become more productive and to better contribute to local food market supply. The Purchase for Progress programme of WFP and partners is an example of such an initiative, which helps strengthen smallholders‟ access to markets and financial services, improve productivity, and reduce some of the risks that smallholders face. 10. Finally, the recommendation with the broadest and most direct relevance to smallholders concerns strengthening the productivity, sustainability and resilience of food and agriculture systems. In particular:
45