MODELING THE IMPACT OF CLIMATE VARIABILITY ON LOCAL FOOD PRICES - Food Security, Food Prices and Climate Variability - page 134

The behavior of each market in response to a shock is determined by a wide variety of factors
that can be observed only with careful analysis and significant time to analyze the results (Masters
et al ., 2013). Chamberlin and Jayne (2013) showed that expansion of trade networks was occur-
ring throughout Kenya during the past decade that was only loosely related to physical infra-
structure of roads and transportation routes. The penetration of private maize traders into even
remote villages to purchase excess grain was far more extensive, but also more idiosyncratic and
dependent on unobservable personal relationships, than previously observed. They also saw
increased private grain assembly operations and investment in selling agricultural inputs in
remote rural areas, which were uncorrelated to expansion in physical infrastructure. These
changes are difficult to observe remotely, but can be inferred from food price analysis, especially
if they change dramatically due to a severe external shock that restricts movement of traders or
reduces excess tradable grain (Chamberlin and Jayne, 2013).
Incorporating information about the impact of climate variability on food production into
models has the potential to significantly improve our understanding of the linkages between
markets. A better understanding of the likely impact of weather shocks on markets can enable
an improved response to isolated and poorly functioning markets. Differences in market
behavior between those who have surpluses that can be marketed and those that do not, in
commodity type, and in processing capabilities all tend to change market interactions (Goletti
and Christina-Tsigas, 1995). Changes in growing conditions can impact an area's productive
capacity to the point where a formerly surplus-producing region can become a deficit area,
impacting trade flows and price differentials (Essam, 2013). Other kinds of supply shocks
involve changes in road conditions (due to floods or other factors), the cost or availability of
vehicle fuel, changing levels of policing on border crossings, and roadblocks set up by govern-
ment or non-governmental organizations. Trade flows are dynamic and change as transporta-
tion costs fluctuate and demand for goods changes (Shepherd, 2012).
Role of trade in farmer behavior
As a country becomes less self-suficient in food, its exposure to the international commodity
market will require larger external payment imbalances (Moseley et al ., 2010). Requirements for
imported grain increase as more farming households purchase food on the markets. Without
modernization, domestic agriculture is unable to keep up with demand from urban areas. During
times of drought the demand for grain increases throughout the country, including in rural areas
that usually have a surplus (Masters et al ., 2013). There are also households who do not participate
in the coarse grain market as sellers, as they have other sources of income (such as wage labor)
that removes the need to sell food to the market (Zant, 2013).
Many households restrict their participation in the market because of high transaction costs
(Shami, 2012). In remote markets poorly connected to other regions, farmers can experience
high costs when trying to find trading opportunities. Barriers such as lack of transport, dis-
tance and/or differences in ethnicity or class reduce the ability of a household to know the
selling price or the risks in the decision to bring their goods to market (Aker et al ., 2010; De
Janvry et al ., 1991). Lack of participation by substantial portions of the population reduces
supply and further increases the vulnerability of a market to climate variability (Egbetokun
and Omonona, 2012; Goetz, 1992).
Households that do not participate in the market seek to be as far as possible self-suficient
in capital, labor and food to reduce exposure to variability in prices and extremely high