MARKETS AND DETERMINANTS OF FOOD PRICES - Food Security, Food Prices and Climate Variability - page 96

crises occur because there is no food available for purchase in markets - only when there is
significant disruption of markets and transportation due to an ongoing conflict or political
upheaval that obstruct transportation networks is food availability significantly affected (Hill-
bruner and Moloney, 2012). Food security crises due to inability to access enough food by
significant portions of the population are far more common than these types of upheavals.
Even during times of crisis, markets are usually full of food that can be purchased - the ques-
tion is, can the poorest in the community afford to buy it? If the price of food increases far
more rapidly than incomes and stays elevated over long periods, the impact on food security
is likely to be negative (Von Braun and Diaz-Bonilla, 2008).
Food price levels and volatility
Markets are by far the most common way that people get food. Markets can be western-style
grocery stores, little one-room shops where the customer is served through an open window,
or an open-air market where goods are displayed on the ground or on tables by product type.
The price of food in these markets is affected by a wide variety of factors, including the inter-
national price of a commodity, time after harvest, local production deficits and political crises.
In very poor regions, the amount of food that each family can buy at one time is very small,
thus the number of food sellers is very large, each dealing in very small quantities ( Plate 10 )
(Fafchamps, 2004). This reduces the ability of markets to obtain economies of scale necessary
to reduce the cost of food to local purchasers and increases transaction costs (Clark, 1994).
Two major factors that affect food access are food price volatility and price levels, or the
average price of food over time. Both are important to food security and access, and both are
determined by local supply and demand (FAO, 2011).
Price volatility is often measured by the coefficient of variation, which is calculated using
the standard deviation of monthly prices over a period of time divided by their mean (FAO,
2011). Prices that are volatile show large changes from one month to the next, or large
changes over a period of months. Volatile prices may be either predictable or unpredictable.
Predictable changes include regular seasonality of increase and decline due to changes in local
supply and demand from the harvest. Another source of predictable variability is a highly vari-
able energy market for petroleum that drives local transportation costs, expenses that may be
passed on to the consumer after a delay. With predictability, preparation and appropriate
policy responses can be developed to reduce the impact of high food prices on the poor.
Predictable changes in food prices have different costs and benefits to local communities than
unpredictable changes. Rapid increases and decreases in the price of food reduce the ability
of local communities to respond effectively (FAO, 2011).
The level of food prices refers to the relative price of food at a specific time compared to the
average food price over an extended period of time. The relationship between local incomes
and local food prices is what determines how food prices affect food security. The impact of
high or variable food prices depends on the livelihood of the community being affected. If the
share of income from agriculture is high, a rise in food prices increases real income, and thus
may have an overall net positive effect (Hertel et al ., 2007; Panagariya, 2005). Three groups of
people can be identified who have different sensitivities to price dynamics:
• Urbanconsumerswhodonotproducefoodandthusincreasedpricesreducetheir
nominal income (Ruel et al ., 2010). The size of the reduction depends on the share of