ABSTRACT
Ability to import food at stable prices has been one of the main concerns for food-deficit developing countries. In the past, the United States has played a role of grain provider of last resort and contributed greatly to the stability of prices and supply through its large stock, which, in turn, was accumulated due to the agricultural policies of the United States. This chapter examines the possibility of using commodity futures for the purpose of price smoothing of food imports for small developing countries. It explains a tighter integration between the theoretical work on the competitive storage model and the role of futures in providing greater stability in imported food prices. The chapter presents a welfare analysis of stable imported food prices. It reviews some findings on spot and futures price behavior relevant to import food price stabilization followed by empirical confirmation of these findings in the context of world wheat market.
