Teevrat Garg Christopher B Barrett Miguel I Gómez Erin C Lentz William Violette Cornell University FAO ISNSymposium January 2012 Motivation for Framework Local procurement is a demand stimulus that could put upward pressures on local prices and price volatility ID: 649568
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Slide1
LRP and Market Prices:
A Multi-Country Analysis
Teevrat Garg
Christopher
B.
Barrett
Miguel I.
Gómez
Erin C. Lentz
William
Violette
Cornell
University
FAO ISN-Symposium
January, 2012Slide2
Motivation for FrameworkLocal procurement is a demand stimulus that could put upward pressures on local prices and price volatility.
Local distribution is a supply stimulus that could place downward pressures on local prices and fuel price volatility.
USDA requires LRP to meet the “do no harm” condition, that is, LRP should not substantially drive up retail prices.
Simple monitoring of prices cannot control for confounding factors, including WFP procurements, climate fluctuations, inflation, seasonal variation, changing transport costs, etc.
Why Study Price
Effects?
MotivationSlide3
Motivation for FrameworkProcurement
Motivation
Price
Quantity
P*
Q*
Exogenous Demand Shift from Procurement
D
S
Prices Rise
D’Slide4
Motivation for FrameworkDistribution
Motivation
Price
Quantity
P*
Q*
Exogenous Supply Shift from Distribution
Prices fall
D
S
S’Slide5
Motivation for FrameworkRetail prices only (wholesale for Kenya).
Scope of the Study
Motivation
Table 1: Types of LRP Projects By Country and Commodity
Country
Procurement
Distribution
Voucher
Burkina Faso
Millet
Millet, Cowpeas
Guatemala
Beans, Incaparina, White Maize
Kenya
Beans, Maize
Beans, Maize
Kyrgyzstan
Wheat (Cash)
Niger
Maize, Millet
Maize, Cowpeas
Uganda
Maize Flour, Maize Grain, Dried Beans, Sorghum
Zambia
Maize Meal, Beans
Maize Meal, BeansSlide6
6
Identification Strategy
Identification Strategy
Price Level Impacts:
Price Volatility Impacts:
X = Full Set of Controls (WFP included)
c: commodity
s: price type (transmission channel)
i
: region
t
: time periodSlide7
7
Key Results: Procurement(Price
Levels)
Country
Maize
Beans
Millet
Burkina Faso
1.386
(3.814)
In Procurement
0.760
Markets
(7.088)
In Non-Procurement
1.525
Markets
(4.620)
Guatemala
-3.473
0.536
(6.097)
(1.245)
In Procurement
-4.261
5.592
Markets
(3.982)
(4.430)
In Non-Procurement
-3.389
-0.178
Markets
(6.948)
(1.277)
Kenya
11.68***
2.892
(3.005)
(3.113)
In Procurement
10.99*
-1.236
Markets
(6.451)
(7.112)
In Non-Procurement
11.84***
4.088
Markets
(3.484)
(3.577)
Niger
2.123
-1.285
(1.625)
(1.355)
In Procurement
5.958
-0.883
Markets
(14.90)
(2.969)
In Non-Procurement
2.091
-2.284
Markets
(1.622)
(1.543)
Zambia
-3.860
-1.078
(6.484)
(2.859)
In Procurement
-3.187
10.03
Markets
(12.22)
(7.003)In Non-Procurement-3.905-1.259Markets(7.607)(2.926)Slide8
8
Key Results: Procurement(Price Volatility)
Country
Maize
Beans
Millet
Burkina Faso
-1.185
(2.670)
In Procurement
-1.990
Markets
(4.452)
In Non-Procurement
-0.626
Markets
(3.337)
Guatemala
3.318
-1.077
(5.584)
(0.806)
In Procurement
2.989
-1.803
Markets
(2.497)
(2.888)
In Non-Procurement
3.190
-0.745
Markets
(6.369)
(0.822)
Kenya
-0.670
-0.690
(1.904)
(2.028)
In Procurement
-2.440
0.346
Markets
(3.003)
(4.107)
In Non-Procurement
-0.574
0.204
Markets
(2.243)
(2.369)
Niger
0.505
-1.161
(1.862)
(0.872)
In Procurement
-3.683
-1.428
Markets
(11.07)
(1.656)
In Non-Procurement
1.066
-0.927
Markets
(3.235)
(0.978)
Zambia
-6.139
0.533
(4.138)
(1.938)
In Procurement
-6.699
-4.115
Markets
(6.533)
(3.930)
In Non-Procurement-6.7110.495Markets
(4.761)(1.982)Slide9
9
Key Results: Distribution(Price
Levels)
Country
Millet/Maize
Dried Beans
Cowpeas
Burkina
Faso (Millet,
not Maize)
-3.055
10.32
(4.553)
(11.03)
In Distribution
-5.429
-
Markets
(11.80)
In Non-Distribution
-2.298
11.31
Markets
(5.033)
(9.486)
Niger
1.755
-14.97*
(1.707)
(8.904)
In Distribution
-
-
Markets
In Non-Distribution
1.736
-10.21
Markets
(1.738)
(8.172)
Zambia
-9.734
3.841
(6.628)
(4.162)
In Distribution
-
-6.875
Markets
(28.69)
In Non-Distribution
-
4.261
Markets
(4.216)Slide10
10
Key Results: Distribution(Price Volatility)
Country
Millet/Maize
Dried Beans
Cowpeas
Burkina
Faso (Millet, not Maize)
9.800***
0.932
(3.299)
(7.184)
In Distribution
11.34
Markets
(7.187)
In Non-Distribution
8.775**
1.849
Markets
(3.848)
(5.657)
Niger
3.854***
36.06**
(1.204)
(15.24)
In Distribution
-
Markets
In Non-Distribution
3.859***
22.73
Markets
(1.228)
(16.66)
Zambia
-4.020
2.470
(4.102)
(2.817)
In Distribution
-
-4.865
Markets
(14.53)
In Non-Distribution
-
2.309
Markets
(2.860)Slide11
11
Key Results: Cash and Vouchers(Price
Levels)
Country
Maize Grain
Sorghum
Wheat
Kyrgyzstan
6.528***
(1.908)
In Procurement
-
Markets
In Non-Procurement
6.004***
Markets
(2.095)
Uganda
-3.666
-2.941
(11.38)
(12.96)
In Procurement
-
-
Markets
In Non-Procurement
-2.238
-5.987
Markets
(14.10)
(16.35)Slide12
12
Country
Maize Grain
Sorghum
Wheat
Kyrgyzstan
0.622
(1.204)
In Procurement
-
Markets
In Non-Procurement
0.716
Markets
(1.314)
Uganda
-3.434
-5.310
(7.518)
(7.792)
In Procurement
-
-
Markets
In Non-Procurement
-3.474
-3.055
Markets
(8.562)
(10.89)
Key Results: Cash and Vouchers(Price
Volatility)Slide13
13
Limitations
Not strictly causal estimates due to potential for omitted relevant variables (e.g., government policies).
Unable to control for GE effects (typical for this literature)
Potential endogeneity of prices and LRP (timing and quantity).
Good News: Practitioners control this mechanism!
ConclusionSlide14
14
For most commodities and countries, there is no economically or statistically significant
correlation of LRP and prices
.
In a very small number of instances, procurement is correlated with upward price pressures, consistent with economic theory.
The possibility of significant induced price effects underscores the importance of market monitoring.
The relative infrequency of such effects suggests that LRP can be undertaken effectively when well designed and monitored.
Distribution may be more of a concern when it comes to price impacts.
Conclusion
Policy ImplicationsSlide15
15
Teevrat Garg
Charles H. Dyson School of
Applied Economics and Management
Cornell University
tg236@cornell.edu
Contact Information
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