Th4_Transmission of rice prices from Thailand into West African markets

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3rd Africa Rice Congress
Theme 4: Rice policy for food security through smallholder and agribusiness development
Mini symposium 2: Policy and price transmission mechanisms affecting rice sector development in Africa
Author: Fiamohe et al.

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  • In the absence of the flow of imports in volume from source, we have an indication of the main countries supplying the three countries.
  • Th4_Transmission of rice prices from Thailand into West African markets

    1. 1. Transmission of rice prices from Thailand into West African markets The case of Benin, Mali and Senegal Ibrahima Bamba1, Rose E. Fiamohe2*, Didier Y. Alia3, Aliou Diagne2 and Eyram Amovin-Assagba 2 1 International Fund for Agricultural Development (IFAD), Via Paolo di Dono, 44, 00142 Rome, Italy. Rice Center (AfricaRice), 01 BP 2031 Cotonou, Benin. 3 University of Kentucky, Department of Agricultural Economics, 400 Charles E. Barnhart Building, Lexington, KY 40546-0276, USA 2 Africa
    2. 2. Background Millions ● Share of imported rice in total consumption in West Africa 20 18 Production (tonnes) Consumption (tonnes) consumption Growth rate 2000-2007: 4% Growth rate 2007-2011: 7% 16 14 Imports (36%) Growth rate 2000-2007: 6% Growth rate 2007-2011: 3% 12 10 8 6 Production (64%) Growth rate 2000-2007: 4% Growth rate 2007-2011: 10% 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
    3. 3. Background ● Rice imports of Benin, Mali and Senegal from International Market Senegal Mali Benin 2000 1800 1600 1400 1200 1000 800 600 400 200 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
    4. 4. Background ● Detailed rice trade flows for Benin, Mali and Senegal  Sources of rice imports of the selected countries in 2008 :  Benin : Thailand (>25%) , Brazil, China, France, …  Mali : Thailand (>25%), China, India, Pakistan…  Senegal : Thailand (>25%), Myanmar, India, Vietnam, … Benin Mali Thailand Senegal
    5. 5. Background ● Rational  Before and after 2008 food crisis, many results from literature provided evidence that international rice price changes were transmitted more frequently, stronger and faster to domestic markets in West African countries,  The reverse is not true because the region is price taker especially for rice.  Responses of domestic market prices in importing countries to changes in the prices in exporting countries are suspected to be of asymmetric nature:  High level of government in both developing and high-income countries interventions in rice markets regulating to stabilize domestic supply and prices due to the inherent instability of the international rice market,  And the structure of both the international (thin and concentrated) and domestic (not homogeneous, and few number of large firms dominate import and wholesale functions) rice markets,
    6. 6. Objectives ● To shed further lights on the functioning of West African and world rice markets by empirically examining whether there is asymmetric adjustment in the transmission of price (PT) shocks between each pair of markets over the period of 2000-2011,  Estimation of:  Linear and threshold short and long run relationship between Thailand and 3 West African countries rice markets,  The value of threshold (transaction costs) that resulted from exchanges between selected pairs of markets.
    7. 7. Methodology ● Estimation framework  The threshold cointegration approach capturing the transaction costs introduced by Hansen and Seo (2002) was used to investigate the dynamic linkages between the selected pairs of rice markets.  Step of estimation (1) Testing for the presence of unit root in each price variable in order to examine the properties of the different time series: ADF and PP tests, (2) Testing of the existence of linear cointegrating relationship between Thailand price and domestic price : Engle-Granger (1987) and Johansen and Juselius (1990) methods, If evidence of linear cointegration is found (3) Testing of the threshold effects and estimating of the cointegrating vector and the value of the cointegration threshold (Transaction costs). (4) Estimation of the parameters of short and long run dynamic adjustments of domestic to world market prices for all cointegrated markets (linear and threshold)
    8. 8. Key results ● Linear long run dynamics adjustment of price response markets pairings Benin-Thai100 Lag=3 Benin-Thai25 Lag=2 Benin Thai A1super Lag=3 Mali-Thai100 Lag=2 Mali-Thai25 Lag=2 Mali-A1super Lag=3 Senegal-Thai100 Lag=3 Senegal-Thai25 Lag=2 Senegal-A1super Lag=4 Engle-Granger test Test Stat Critical value -3.396** 0.000 -3.243** 0.001 -3.031** 0.002 -3.561** 0.000 -3.179** 0.001 -2.608** 0.009 -4.061** 0.000 -4.041** 0.000 -3.831** 0.000 The notations*and** correspond to10%and 5% significance levels. Ho r= 0 r= 1 r= 0 r= 1 r= 0 r= 1 r= 0 r= 1 r= 0 r= 1 r= 0 r= 1 r= 0 r= 1 r= 0 r= 1 r= 0 r= 1 Johansen test Trace stat Critical Value 24.837 25.872 6.222 12.517 25.498 25.872 6.101 12.518 26.286* 25.872 5.539 12.518 21.543* 15.495 1.215 3.841 12.983 15.495 0.309 3.841 13.993 15.495 1.457 3.841 21.000* 15.495 0.664 3.841 23.715* 15.495 0.435 3.841 32.499* 15.495 0.836 3.841
    9. 9. Key results 3.1. Test of linear versus threshold cointegration of Hansen and Seo (2002) Price (bivariate) Benin Mali Senegal Senegal Senegal ThaiA1 Super Thai 100 Thai 100 Thai 25 Thai A1 Super Type of Test de Hansen and Seo (2002) cointegration β estimate β=1 T. stat P-Value T. stat P-Value 24.034 0.048** 23.669 0.058* Threshold 23.436 0.051* 28.851 0.003*** Threshold 18.767 0.448 31.611 0.005*** Linear Linear 15.212 0.296 17.469 0.161 Linear 14.806 0.333 13.206 0.532 The notations*, ** and***correspond to10%, 5% and 1%significance levels. 3.2. Estimated cointegrating vectors and thresholds (transaction costs) Domestic market Benin Mali Senegal Senegal Senegal Thailand market Thai A1 Super Thai 100 Thai 100 Thai 25 Thai A1 Super Estimated Cointegrating Vector 1. 224 1. 123 0.794 0.808 0.823 Estimated Threshold -0.178 -0.096 No threshold No threshold No threshold
    10. 10. Key results ● Short run dynamics of price response Market Pairings Linear price responses for Senegal to change in Thailand prices wt−1 Senegal-Thai 25 Senegal-Thai 100 Senegal-Thai A1 Super Asymmetric price responses for Benin and Mali to change in Thailand prices wt−1<= - wt−1> - wt−1<= - wt−1>0.178 0.178 0.096 0.096 -0.144*** (0.036) -0.129*** (0.035) -0.157*** (0.036) Benin - Thai A1 -0.030 -0.026 (0.637) (0.152) Mali -Thai 100 Nob. of observation 144 8.5% 0.064 0.015 (0.409) (0.771) 91.5% 20.6% 79.4%
    11. 11. Conclusions and implications ● Conclusions  Changes in prices in Thailand select rice grade markets are differently transmitted to the West African countries,  Linear co-movements between the prices of the three grades Thai rice and domestic price in Senegal,  Asymmetry co-movement between prices of Thai A1 Super and domestic prices in Benin and that of Thai 100 and domestic prices in Mali,  Presence of high transaction costs. ● Implications  Benin and Mali  Price increases in Thai A1 Super and Thai 100 markets are quickly transmitted to domestic price than price decrease respectively,  Short run dynamic inefficiencies due to the presence of high transaction costs.  Senegal  Price adjustment is linear,  More deep integration to selected Thailand rice markets.
    12. 12. Merci! Thank you! Center of Excellence for Rice Research
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