Agriculture Reference
In-Depth Information
Implications for policy and response
The implications of this economic model are that an improved understanding of the policy
implications of simultaneous shocks can be estimated, and this knowledge could be used to
improve social welfare. Rural economies operate in a dynamic, complex environment with
multiple stressors. Many of the influences to vulnerable rural livelihoods are not observable
and change rapidly. Data on food price time series can be usefully combined with spatially
explicit satellite remote sensing information about climate variability to provide more accurate
assessment of the status of rural livelihoods. This information can be used to improve early
warning of impending shocks to a food system through organizations like FEWS NET. As
the food price time series extends to additional months, the model will provide additional
information and allow for quantitative comparison across multiple countries.
Model information about the interaction of weather and food price shocks could comple-
ment existing analyses to qualitative assessment of livelihood and entitlements of vulnerable
populations. Regions with local food price movements that are unusual or that do not respond
in anticipated ways could indicate the effectiveness (or lack thereof) of private traders to supply
markets that are experiencing food deficits. Humanitarian organizations need a quantitative
approach to flag markets in regions experiencing drought or other widespread food production
shock. If local private traders are doing their job and food is flowing into a market to respond
to high food prices, then outside help is not immediately necessary. If this is not happening for
some reason, then outside intervention may be required. Rapid assessment of the response of a
market and the broader region to production shocks would be an important contribution.
The model analysis would also provide an improved baseline for poverty assessment. Tra-
ditional measures of poverty are based on consumption aggregates at the national level. The
analysis presented here shows that each market is different and that aggregation at the national
level, where regional and capital city markets are grouped, does not really make sense given
the heterogeneous response to shocks these markets show. Poverty analysis that includes
information on local food price dynamics (including weather and other shocks) can provide
context to poverty evaluations and lead to more nuanced policy conclusions regarding the
impact of government programs on rural outcomes (Deaton and Zaidi, 2002).
Summary
This chapter described the various ways food prices can be related in a modeling framework
and presented a model using a state space approach to model local price dynamics, which was
popularized in the economics literature by Harvey (1989). Economic impacts of changing
supply and demand, and how these impacts are affected by the market's relative connected-
ness to the international markets were described. A conceptual typology that provides the
influence of the international commodity markets and the local climate variability on local
food prices was presented, along with a discussion of the impact of these various influences
on food price creation.
References
Aker, J., Klein, M. W., O'Connell, S. A. and Yang, M. (2010) Are borders barriers? The impact of
international and internal ethnic borders on agricultural markets in West Africa. CGD Working Paper
208 , Washington DC: Center for Global Development.
 
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