Climate shocks, food price stability and international trade: evidence from 76 maize markets in 27 net-importing countries

Do food imports increase the variability of domestic food prices? The answer to this question depends on whether foreign production is more volatile than domestic production. If imports are likely to destabilize domestic prices, storing crops for future consumption may prove an appealing strategy to cope with the adverse supply effects of a more unstable climate. Unfortunately, public storage has proven to be unsustainable due to the high costs of carrying crop inventories over time and the inability of policy planners to correctly forecast changes in domestic supply. Therefore, understanding the roles of imports and stocks on domestic food price instability is important as domestic shortfalls in food production are likely to become more frequent as the world's climate becomes warmer. Using maize prices observed in 76 maize markets of 27 maize net importers across Africa, Asia and Latin America during 2000–2015, we find that, on average, a 1% increase in the ratio of imports to total consumption is correlated with a 0.29% reduction of the intra-annual coefficient of variation of maize prices; likewise a 1% increase in the amount of maize available in stocks at the beginning of the season is correlated with a 0.22% reduction in the said coefficient. We also find that climate-induced supply shocks toward mid-century may increase maize price variability in the focus countries by around 10%; these increases could be offset with similar increases in the ratio of imports to total consumption or in the stock-to-use ratio at the beginning of the crop marketing year. The fact that both imports and stocks help to stabilize domestic prices suggests that their uses should hinge on a careful cost-benefit analysis, including the risk of facing world production more variable than domestic production and the costs of carrying maize inventories over time.