Agriculture Reference
In-Depth Information
Figure 5.6 shows the local retail price of sorghum for Zinder, Niger compared to the FAO
cereals index. The two time series are poorly correlated, with little relationship between the
dynamics of the two series. Of course, this is to be expected since the FAO food index has
rice, corn and wheat prices observed in capital cities, and Zinder is not a capital city. But the
lack of relationship is striking - what does drive local prices, then? Are all food prices in Niger
like that of Zinder? The next section will provide analysis that will answer these questions.
National food price indices for food insecure nations
Prices of staple foods in food insecure regions often do not immediately follow international
export market price trends, due to imperfect market integration, prices for local products
moving between the export and import parity price bounds, an absence of imported products
and/or policy barriers to trade (Minot, 2011; Conforti, 2004). To determine how related the
food prices are in any particular country to global price dynamics, we need to create local
price indices that mirror those created for globally traded commodities. Once a country-level
cereal price index is created, we can assess how related it is to global cereal prices.
To determine the degree of co-movement between prices, economists use regression ana-
lysis. The idea behind these time series regressions was that if markets were integrated, then
their prices would tend to move together. However, this approach has been criticized since
many common components (inflation, climate patterns and population growth) can exert
similar influence over prices, even if markets do not trade with each other. At the opposite
end of the spectrum, monopoly procurement at fixed prices may result in correlation coeffi-
cients of 1.0, regardless of the degree of interaction between markets (Harriss, 1979; Fackler
and Goodwin, 2001). Linear correlation also cannot distinguish between markets in which
Zinder sorghum prices (CFA/kg)
FAO cereals price index (unitless)
FIGURE 5.6 Plot showing the retail price of sorghum, a locally grown small grain in Zinder, Niger
in CFA franc per kilogram, along with the cereals price index, base 2004-06 (source:
data from the FAO price database (FAO, 2013)).
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