MARKETS AND DETERMINANTS OF FOOD PRICES - Food Security, Food Prices and Climate Variability - page 99

Transmission of high prices from world markets to local households

How do changes in global food prices, shown in Figure 5.4 , impact nutrition outcomes in the
world's poorest countries? To understand this we must trace the linkages of global price to
national, regional and to household and examine how prices are mediated at each stage ( Table
5.2 ). There is a large literature regarding food price transmission, particularly focused on the
impact of the recent increase in global commodity prices on food security (Garg et al ., 2013;
Abbott and Battisti, 2011; Baffes and Dennis, 2013; Baltzer, 2013; Von Braun and Tadesse,
2012; Rashid, 2011). Price transmission happens when two markets that are spatially sepa-
rated have prices that move together. These movements do not need to be driven by actual
physical movement of goods or services, they can also be caused simply by the flow of
information (Von Braun and Tadesse, 2012). There are many studies that suggest that recent
high food prices have been transmitted strongly to local markets in poor countries (Minot,
2011; Garg et al ., 2013; Dillon and Barrett, 2013; Baffes and Dennis, 2013). These transmis-
sions are not complete, with some markets being unresponsive and others reacting in just a
few days after the shock occurs (Von Braun and Tadesse, 2012). As Von Braun and Tadesse
(2012) point out, “prices in regions characterized by permanent surplus or deficit are more
correlated to global reference prices than those in regions with an occasional surplus or
deficit.” Although it has been shown that price transmission is less complete in African markets
than in Asian and Latin American markets, it is difficult to associate local prices with global
price changes for the same commodity.

800

Rice, white broken
Wheat, Argentina
Maize, US no. 2 700

600

500

400

300

200

100

0

1985 1990 1995 2000

Year

2005 2010 2015

FIGURE 5.4 International commodity prices at major ports for maize, rice and wheat (source: from
the FAO Statistical Database).