Part II of the presentation of IFPRI's Sudan Strategy Support Program's study on wheat value chains in Sudan: "Wheat and it's role for food security in Sudan".
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2. Khaled Siddig (IFPRI). How well are wheat markets integrated? Findings from a co-integration analysis
1. Sudan Strategy Support
Program (SSSP)
Wheat & Its Role for Food Security in Sudan
International Food Policy Research Institute
Feb. 9, 2022
The SSSP is funded by:
2. 2. How well are wheat markets integrated?
Findings from a co-integration analysis
Presented by: Khalid Siddig
3. Overview of Session
1. What are the constraints and
opportunities of key wheat supply chain
actors? Insights from a recent survey
(presented by Oliver Kirui)
2. How well are wheat markets integrated?
Findings from a co-integration analysis
(presented by Khalid Siddig)
3. What are the distributional consequences
of wheat policy in Sudan? A simulation
model analysis (presented by Paul
Dorosh)
4. Political Economy of Wheat Value Chains
(presented by Khalid Siddig)
4. 2. How well are wheat markets integrated? Findings from a
co-integration analysis
Presented by Khalid Siddig
Based on a paper by:
Kibrom A. Abay, Lina Abdelfattah, Clemens
Breisinger, and Khalid Siddig
5. Research questions and methodology
Key Questions
How efficient and integrated are wheat (cereal) markets in Sudan?
How does the short- and long-run price transmission in wheat markets look like?
What happens when there is production/consumption shocks to specific markets?
Data and Methods
Using long-ranging monthly cereal price data we conduct comprehensive market
integration and price transmission analyses, focusing on local wheat and sorghum
markets.
We consider a long list of cereal markets spread throughout the country
We employ multivariate cointegration framework to estimate short-run and long-run
price transmission elasticities.
6.
7. Trends in wholesale wheat price data
• Key statistical tests show lack of market integration (integration only among limited
number of markets)
• Markets in mainland and Darfur markets are not well-integrated
• Market integration between consumption and production hotspots is weak
Market Integration
High Low/None
Production
Potential
High
Damer
Dongola
Madani
Low
Khartoum Kadugli
Kassala Damazin
Obeid El Fasher
Kosti Gedarif
Sennar Nyala
Zalingei
Singa
Wheat Real Prices in All Markets Except Darfur Wheat Real Prices in Darfur Markets
8. Shocks to wheat prices in Khartoum
IRF: Khartoum, El-Damer IRF: Khartoum, Dongla IRF: Khartoum, Kassala
IRF: Khartoum, Kosti IRF: Khartoum, El-obeid IRF: Khartoum, Sinnar
• Shocks to consumption hubs have lasting impacts on the rest of markets
9. Shocks to wheat prices in Khartoum
• Shocks to production hubs have short lived impacts on the rest of markets
• Price policies that target few markets and states have spillover effects in
neighboring markets.
10. Conclusions
Agricultural markets are often adversely impacted by fragile political and economic
circumstances, a weak business environment, and a lack of market infrastructure,
institutions, and information.
Locally produced wheat often traded between adjacent markets, but markets are often
not well integrated and production potential varies significantly among states.
For markets to function efficiently, region-specific interventions and investments are
required:
o In states with limited market integration: focus on market infrastructure such as connections
with major trading centers.
o In high production potential states, productivity-enhancing investments benefit households in
other states, only if they facilitate market sales by producers.
In the 2021 fiscal year budget only allocated 10% of expenditures toward economic
affairs, inclusive of agriculture, industry, and mining.
Investments in broader agriculture (e.g., irrigation, fertilizers, seeds, pesticides, and
extension) also benefit wheat production and wheat markets.
Editor's Notes
Port Sudan is the country’s main entry point for imported wheat and most milling companies have storage facilities there. Imported wheat is typically transported to Khartoum where 80 percent of it is used by large processing firms, while the remaining 20 percent is transported to the other milling firms elsewhere in the country.
Shocks to production hubs have short lived impacts on the rest of markets
Figure 6 shows the implication of one unit shock to wheat prices in Dongola, a major production hub, on the rest of the markets sharing a common stochastic trend. We see that the shock to prices has a short-lived impact on wheat prices in other markets. This is not surprising given that Dongola produces only a limited share of the total wheat needed to satisfy food demand in Sudan and consumers may substitute domestic wheat with imported if the price of the former increases.
First, price related policies, including subsidies and stabilization policies, that target few markets and states will have major spillover effects in neighboring markets. Similarly, production shocks in some of these markets are likely to generate significant price hikes in neighboring markets and states.