Regional Trade and Food Price Stablisation in South Asia: Policy Responses to the 2007-08 World Price Shocks

World price shocks and disruptions in international cereal trade in 2007 and 2008 caused considerable anxiety and hardship for food importing countries throughout the world. In South Asia, Pakistan, Afghanistan, Bangladesh and India were all affected by these movements in international prices, though the effects on domestic prices in each case was mitigated or exacerbated by each country’s own trade policies, as well as the trade policies of its neighbours. This paper reviews domestic and international trade policies in South Asia in recent years and argues that liberalised international trade still provides the best mechanism for stabilising prices and food supplies in most years. Nonetheless, appropriate contingency policies still are needed for years in which international prices are extraordinarily high. More explicit commitments to cereal trade liberalisation within South Asia would also promote region-wide food security and help avoid a repetition of export supply disruptions by India that contributed to sharp rises in food prices in Bangladesh, and similar restrictions by Pakistan that contributed to food price increases in Afghanistan.