Trade diversification and food price volatility

Abstract Recent shortages and price volatility have exposed vulnerabilities in international agri-food value chains. This paper develops a new framework for measuring trade diversification based on Hill numbers, which capture both the extensive and intensive margin of trade connections. Using HS6-level bilateral data for 188 countries from 2000 to 2022, I first document global patterns of diversification and concentration across agri-food sectors. The descriptive evidence shows that most countries trade with many partners in principle, yet effectively rely on only a few, especially for grains and oilseeds. I then estimate the effect of import and export diversification on within-year food price volatility using a shift–share instrumental-variable design that exploits exogenous foreign sector-level shocks weighted by lagged bilateral trade exposure. The empirical results show that more balanced and diversified import portfolios are strongly associated with lower food price volatility, whereas export diversification plays a more limited role. Policies encouraging diversification can reduce food price volatility but involve trade-offs between efficiency from international specialization and resilience of the input–output network.