Download - Moz food market_integration
The Integration of Food Markets in Mozambique
Opportunities and Challenges
Bjorn Van Campenhout – IFPRI, Kampala [email protected]
Prepared for the IFPRI Maputo workshop on 18 November 2012 @
Hotel VIP
Significance
• Definition: Spatial market integration = net producers are connected to net consumers through price arbitrage
• Importance for Mozambique: – Large ag potential of north and central
Mozambique to feed Maputo and rest of SE Africa
– Food security: pockets of hunger are on the increase due to climatic shocks
The Concept of Market Integration - To integrate local markets into the wider economy,
the “transaction cost” is a key variable -
1EQ
D
S
S
D
1EP
2EQ
2EP
D’
'2EQ
'2EP
'1EQ
'1EP
S’
Until TPP EE =− '2'1
The Effect of Market Integration
Source: Jensen, 2007
The Theory of Spatial Price Equilibrium
• Correlation coefficient • Cointegration and error correction • The parity bounds model • Threshold autoregressive/cointegration
models
TAR models: piecewise linear
Δ(p1-p2) at t
-TC TC
(p1-p2) at t-1
Slope: adjustement speed
TAR models: piecewise linear
Random walk (imposed)
Error correction
Error correction
Transaction cost
Transaction cost
Non-parametric extenstion
• TAR model, but estimate transaction cost using locally weighted least squares
• Iterative method: – Estimate a standard TAR model (ρ,TC) – Fix adjustment parameter and estimate transaction
cost using locally weighted LS (TCt) – Using new transaction cost, re-estimate adjustment
parameter – Repeat until criterion is met (i.e.|Δρ|<0.0005)
Nominal price of Maize in 3 markets
Results – Estimated Parameters
Maputo - Maxixe
Selected Markets
Policy Options to Increase Market Integration
• Transport infrastructure: • Information systems • Increase competition among traders ->
formalize trade of trader – Credit – Insurance – Quality control