The Integration of Food Markets in          Mozambique           Opportunities and Challenges   Bjorn Van Campenhout – IFP...
Significance• Definition: Spatial market integration = net  producers are connected to net  consumers through price arbitr...
The Concept of Market Integration       - To integrate local markets into the wider economy,               the “transactio...
The Effect of Market Integration           Source: Jensen, 2007
The Theory of Spatial Price                Equilibrium•   Correlation coefficient•   Cointegration and error correction•  ...
TAR models: piecewise linear         Δ(p1-         p2) at t                         (p1-p2) at t-1                        ...
TAR models: piecewise linear                    Error correction                 Transaction cost                    Rando...
Non-parametric extenstion• TAR model, but estimate transaction cost  using locally weighted least squares• Iterative metho...
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 compet...
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Moz food market_integration

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Moz food market_integration

  1. 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. 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. 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. 4. The Effect of Market Integration Source: Jensen, 2007
  5. 5. The Theory of Spatial Price Equilibrium• Correlation coefficient• Cointegration and error correction• The parity bounds model• Threshold autoregressive/cointegration models
  6. 6. TAR models: piecewise linear Δ(p1- p2) at t (p1-p2) at t-1 Slope: adjustement speed -TC TC
  7. 7. TAR models: piecewise linear Error correction Transaction cost Random walk (imposed) Transaction cost Error correction
  8. 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. 9. Nominal price of Maize in 3 markets
  10. 10. Results – Estimated Parameters
  11. 11. Maputo - Maxixe
  12. 12. Selected Markets
  13. 13. Policy Options to Increase Market Integration• Transport infrastructure:• Information systems• Increase competition among traders -> formalize trade of trader – Credit – Insurance – Quality control

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