Intercommodity price transmission and food price policies: An analysis of Ethiopian cereal markets

Cereal price variability in Ethiopia has worsened in recent years, and some of the earlier liberalizations are being reversed due to the unacceptable economic and political costs of increased price variability. The challenge now is to achieve price stability in a cost-effective way. This paper examines intercommodity price relationships to assess the relative importance of each of the three major cereals in generating price volatility. Based on the estimates from a dynamic econometric model, the paper concludes that maize is the most significant in exacerbating price variability with respect to the persistence of shocks to itself and the two other cereals. This implies that focusing on maize, instead of wheat, will not only help better stabilize prices but also reduce costs of stabilization. The results are also discussed in the context of ongoing policy discussions.Cointegration, common trend, food price stabilization,

Spatial integration of maize markets in post-liberalized Uganda

"Using weekly price data for two sub-periods, this paper analyzes how Ugandan maize market performed in the years following agricultural market liberalization in the early 1990's. For each time period, the extent of integration, causality among spatial locations, and relative importance of spatial locations in price formation are examined. The extent of integration, defined as a set of markets that shares common long-run price information, and the causal relationships among markets have been tested within Johansen's cointegration framework. The relative importance of each market locations is examined by estimating the common trend coefficients with a dynamic vector moving average model. Results indicate that, while there has been an overall improvement in spatial price responsiveness, the northern districts, which have been in a state of insurgency since 1986, continue to lack integration with major consumption markets in the central region. Causality test results show that compared to the 1993-1994-time period, representing the early years of liberalization, interdependence among markets has increased. Estimates of the common integrating trend suggest that public policies, such as price stabilization, can have desired impacts by targeting a small number of locations. These results are consistent with recently conducted household and market surveys in the country." Author's AbstractMarket integration ,Causality ,Multivariate cointegration ,

Staple Food Prices in Ethiopia

Prepared for the COMESA policy seminar on “Variation in staple food prices: Causes, consequence, and policy options”, Maputo, Mozambique, 25‐26 January 2010 under the African Agricultural Marketing Project (AAMP)Ethiopia, food security, food prices, Agricultural and Food Policy, Community/Rural/Urban Development, Demand and Price Analysis, Food Security and Poverty, International Relations/Trade, q11, q18, q17,

Cereal price instability in Ethiopia: An examination of sources and policy options

Managing food price instability is a long standing policy challenge, which, with mixed experiences of agricultural price policy reforms, has re-emerged as a contemporary policy issue. This is particularly true for Ethiopia, where managing food price stability continues to be a formidable policy challenge. The objective of this paper is to examine the underlying causes of cereal price instabilities and to assess the policy options to manage them. It undertakes three tasks: (a) analyzes the sources and degree of cereal price instability, (b) discusses the viability of various policy options, and (c) critically reviews the country’s past, ongoing, and emerging policies for food price stabilization. The results show that the determinants of price stability—infrastructure, information, and institutions—are at low levels of development; both production and price variability are high, and despite this continued high variability in prices, price risks mitigation has lost its importance in the country’s policy agenda. By analyzing market-based and non market-based policy options, as well as recent trends in the cereal markets, the paper argues and concludes that reliance on any single option may not produce the expected results. A combination of the two will be desirable, especially in the short run.Cereal, Policy, Price instability, Ethiopia, Agricultural and Food Policy, Community/Rural/Urban Development, Crop Production/Industries, Environmental Economics and Policy, Food Consumption/Nutrition/Food Safety, Food Security and Poverty, Institutional and Behavioral Economics, International Relations/Trade, Production Economics, Research and Development/Tech Change/Emerging Technologies, Research Methods/ Statistical Methods,

Strategic grain reserves in Ethiopia: Institutional design and operational performance

Holding strategic grain reserves to address food price hikes has received renewed attentions in recent years. This paper examines such a program in Ethiopia that has been successful in addressing several emergencies since the 1990s. The analysis suggests that the key ingredients behind the success are a unique institutional design, coordination during emergencies with food-based safety net programs, and keeping the grain stocks to a minimum. Institutional design is unique because, unlike similar agencies in other countries, Ethiopia's Emergency Food Security Reserve Administration (EFSRA) is independent of price stabilization and hence is not engaged in buying and selling of grain. The paper also demonstrates that scaling up school feeding programs will generate additional food demand and an effective outlet for stock rotation; and that increasing the stock level for price stabilization will adversely affect both grain markets and the performance of the EFSRA.strategic grain reserves, agricultural price policies, safety net programs,

Are Staple Food Markets in Africa Efficient? Spatial Price Analyses and Beyond

Paper to be presented at the Comesa policy seminar “Food price variability: Causes, consequences, and policy options" on 25-26 January 2010 in Maputo, Mozambique under the Comesa-MSU-IFPRI African Agricultural Markets Project (AAMP)Sub saharan Africa, food security, food prices, markets, efficiency, Agricultural and Food Policy, Community/Rural/Urban Development, Demand and Price Analysis, Food Security and Poverty, International Development, International Relations/Trade, q11, q13, q18, q17,

Micro-lending for small farmers in Bangladesh

It has been long hypothesized that lack of access to credit is the main reason why, despite higher profitability of High Yielding Varieties (HYVs), farmers in developing countries continue to allocate a portion of their land to traditional crop varieties. The empirical testing of this hypothesis has generated a large body of literature with differing conclusions. This paper re-examines the issue in the context of a specially designed group-based lending program for small farmers in Bangladesh, who neither have access to formal sources of credit nor do they qualify to become members of other micro-credit organizations. Two measures of access to credit, credit limit and amount borrowed at a given point in time, are used to analyze the determinants of farm households' land allocation decision. Under a variety of model specifications, formulated within Heckman's two-step method, the results show that credit limits from the lending programs and informal sources are significant determinants of small farmers' decision to cultivate HYV. Authors' abstract.Bangladesh. ,Microfinance. ,South Asia. ,Credit Bangladesh. ,Small farmers. ,Land use Economic aspects. ,Households Bangladesh. ,Micro-credit programs. ,Selection bias. ,Access to credit. ,Credit limit. ,Land allocation decision. ,

Grain marketing parastatals in Asia

Using case studies from six Asian countries, this paper (a) assesses the relevance of underlying rationales for public intervention in foodgrain markets, (b) documents the existing policies and regulations that support operation of grain parastatals, (c) provides estimates of benefits and costs of parastatals, and (d) compares experiences of countries that liberalized (or reduced intervention) with the ones that continue to have significant presence of parastatals. Our results suggest that conditions in the region have improved significantly over the past thirty years; and none of the four commonly agreed rationales—that is, poorly integrated domestic markets, thin and volatile world market, promoting modern technology and the scarcity of foreign exchange reserves—for public intervention in foodgrain markets are now persuasive. Domestic foodgrain markets are integrated, international markets for both wheat and rice are significantly more robust than they were thirty years ago, High-Yielding Varieties (HYV) now cover practically all of the high potential area sown to wheat and rice; and foreign currency reserves have increased dramatically in all countries in recent years. However, although rationales have lost their significance, many countries continue to practice old policies and provide regulatory supports to parastatals, including monopoly control over international trade, preferential access to transportation, restrictions on movement of foodgrains, and cheap or interest-free credit. Relative to the private sector, the costs of the grain parastatals have been high and are increasing, as special interests and rent- seeking are increasingly dictating their operation. This is being manifested in various forms, such as excessive public stocks in India, vacillating import policies in Indonesia and Pakistan, questionable government foodgrain import decisions in the Philippines, and politically-determined ceiling and floor prices in India. On the other hand, the experiences of Bangladesh and Vietnam, both of which have implemented extensive reforms over the last fifteen years, suggest that reduced government intervention can promote competition in the domestic markets, reduce subsidies, and release funds for development and anti-poverty programs without jeopardizing price stability. The paper concludes that reforms are overdue and the delay in changing the old ways of doing price stabilization will be increasingly wasteful.

From parastatals to private trade: Lessons from Asian agriculture

"Governments in Asia used grain price stabilization as a major policy instrument when they began to promote the Green Revolution in the 1960s. In the process, they created parastatal agencies, which were quasi-governmental in nature, to undertake public marketing activities in basic staples such as rice and wheat. These operations often meant providing a support price to farmers, procuring staples on government account, holding public stocks, and distributing these stocks through public distribution systems or open market operations to hold the price line for consumers. This led to a sizeable degree of government intervention in most of these countries' grain markets, which continues to a large extent today." from TextPrice stabilization, Green Revolution, Parastatals, Agricultural policies, Production risk, Consumer vulnerability, Government commitment, Incentives, Institutions, Investments, Private sector,

Purpose and potential for commodity exchanges in African economies:

This paper reviews the purpose and potential of commodity exchanges in Africa. Drawing from the existing literature and using indicative empirics, it examines the conditions that enable successful exchanges, highlights the special challenges to setting up exchanges in Africa, and reviews alternatives to domestic exchanges. We argue that many critical preconditions for the successful establishment of commodity exchanges in Africa remain binding in the short to medium term. The development of commodity exchanges in the region is impeded by the relatively small size of domestic commodity markets, the weak physical and communication infrastructure, a lack of supportive legal and regulatory environments, and the likelihood of policy interventions, particularly in the staple cereals market. Meanwhile, the demand for a domestic commodity exchange for export crops may be limited due to the availability of well-established exchanges abroad and functioning auction floors. The paper highlights three points: (a) efforts to launch exchanges in Africa should realistically assess whether basic conditions for success can be met, (b) if the pre-conditions cannot be met, the use of existing exchanges abroad or the development of regional exchanges may be more feasible than the establishment of national commodity exchanges, and (c) the goals of risk management and reduced transaction costs might be achieved more effectively by improving market fundamentals through investments in transportation, information services, or other financial institutions.commodity exchanges, Risk management, Market development,