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Moz food market_integration

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  • 1. The Integration of Food Markets in Mozambique Opportunities and Challenges Bjorn Van Campenhout – IFPRI, Kampala b.vancampehout@cgiar.orgPrepared for the IFPRI Maputo workshop on 18 November 2012 @ Hotel VIP
  • 2. 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
  • 3. The Concept of Market Integration - To integrate local markets into the wider economy, the “transaction cost” is a key variable - Until PE1 − PE 2 = T S S’ S 1PE 1PE 2 PE 2 PE D D’ D 1 1 2 2 QE QE QE QE
  • 4. The Effect of Market Integration Source: Jensen, 2007
  • 5. The Theory of Spatial Price Equilibrium• Correlation coefficient• Cointegration and error correction• The parity bounds model• Threshold autoregressive/cointegration models
  • 6. TAR models: piecewise linear Δ(p1- p2) at t (p1-p2) at t-1 Slope: adjustement speed -TC TC
  • 7. TAR models: piecewise linear Error correction Transaction cost Random walk (imposed) Transaction cost Error correction
  • 8. 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)
  • 9. Nominal price of Maize in 3 markets
  • 10. Results – Estimated Parameters
  • 11. Maputo - Maxixe
  • 12. Selected Markets
  • 13. Policy Options to Increase Market Integration• Transport infrastructure:• Information systems• Increase competition among traders -> formalize trade of trader – Credit – Insurance – Quality control