Humboldt-Universität zu Berlin - Quarterly Journal of International Agriculture

Quarterly Journal of International Agriculture No. 4/13

Food Price Volatility in Developing Countries and its Determinants

Lukas Kornher and Matthias Kalkuhl
Zentrum für Entwicklungsforschung (ZEF), Universität Bonn


This article contributes to the ongoing discussion on the drivers of food price volatility. Based on theoretical considerations, economical, agricultural, and political determinants of domestic price volatility are identified and discussed. A dynamic panel is estimated to account for country fixed effects and persistence of volatility. Two approaches are followed in order to consistently estimate the impact of time-invariant variables. First, system GMM using levels instead of first differences and, second, a two-step IV estimation using the residuals from the system GMM estimation. Findings suggest that stocks, production, international price volatility, and governance significantly affect domestic price variability. Furthermore, improved functionality of markets and reduced transaction costs can stabilise prices. With respect to agricultural policies, public stockholding seems to be associated with less volatility, whereas trade restrictions do not enhance price stabilisation. Lastly, landlocked countries experience less variability in grain prices, while African countries have more volatile prices than countries on other continents.

Keywords: determinants of food price volatility, public buffer stock, competitive storage, system GMM

JEL: O13, Q11, Q18

Vol. 52 (2013), No. 4: 277-308