Working Paper: CEPR ID: DP5548
Authors: Olivier Cadot; Laure Dutoit; Jaime de Melo
Abstract: Commodity prices are usually very slow to recover from adverse shocks. This is one of the reasons why it has proven so difficult either to smooth their effect or to stabilize them, and why it is sometimes argued that they should behave as if shocks were permanent. There is no reason however why countries should not find ways to protect themselves. This paper develops one practical idea on how this could be done. Our goal is not to stabilize prices, but to smooth the income of the producers. Countries, we assume, should get protection against deviation of commodity prices from a moving average of past prices. This avoids the pitfalls of past stabilization that attempted to stabilize around a single price and yet our scheme gives countries time to adjust to permanent shocks. Over a period of a 50 years time horizon, we simulate that the median cost would be worth about six months of exports.
Keywords: Madagascar; Marketing Board; Poverty; Vanilla
JEL Codes: F14; O11; O12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Elimination of Madagascar's marketing board (F13) | Increase in fraction of vanilla FOB prices retained by producers (L11) |
| Reduction of monopolistic practices (L43) | Increase in fraction of vanilla FOB prices retained by producers (L11) |
| Increase in fraction of vanilla FOB prices retained by producers (L11) | Limited impact on farmers' consumption (D19) |
| Elimination of Madagascar's marketing board (F13) | Lifting of approximately 20,000 individuals out of poverty (I32) |
| Increase in fraction of vanilla FOB prices retained by producers (L11) | Improvements in producer prices (L11) |
| Improvements in producer prices (L11) | Small overall impact on poverty and inequality (F63) |