Impact of Global Oil Price Rise on Local Maize Market Prices in Africa

The presentation discusses the potential impact of a rise in global oil prices on local maize market prices in Africa, focusing on the interconnected factors such as transport costs, biofuels, and price transmission within and between countries. It explores the correlation between global oil prices and maize prices, highlighting the significance of maize in ensuring food security in East Africa. The study delves into the implications for price co-movements on global markets, port-of-entry prices in specific countries, and simulations of how changes in global oil and maize prices could affect local maize prices.

• oil prices
• maize market
• Africa
• food security
• price correlation

caon459 Follow

Uploaded on Oct 05, 2024 | 0 Views

Download Presentation

Please find below an Image/Link to download the presentation.

The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author. Download presentation by click this link. If you encounter any issues during the download, it is possible that the publisher has removed the file from their server.

Presentation Transcript

1. How a Global Oil Price Rise Might Impact Local Maize Market Prices in Africa January 7, 2013 Brian Dillon, Cornell University Chris Barrett, Cornell University A presentation for the Oil Prices and African Food Security workshop Cornell University, Jan 7-8, 2013 Sponsored by the Bill and Melinda Gates Foundation

2. Motivation: Maize is central to food security in east Africa Hectares under cultivation, by crop, 2007-2010 Ethiopia Kenya Tanzania Uganda Area ('000 Ha) Maize Other cereals Fruit Pulses Tubers Vegetables Total Source: FAOSTAT 1,751 7,214 90 1,486 803 368 11,700 1,802 432 188 1,149 261 140 3,972 2,878 1,956 814 1,542 1,542 310 9,042 871 920 1,835 1,106 1,102 188 6,022

3. Motivation: Maize is central to food security in east Africa From the FAO Food Balance Sheets (2009): Ethiopia: Kenya: Tanzania: Uganda: 418 kcal/day (20% of total) 672 kcal/day (32%) 519 kcal/day (23%) 190 kcal/day (9%)

4. Motivation: Numerous possible links between oil prices and maize prices 1. Transport costs 2. Biofuels and the US ethanol mandate 3. Fertilizer costs We ignore the fertilizer channel, because of low usage rates in the region and difficulty acquiring data

5. Plan of this talk: 1. Price co-movement on global markets 2. Connection to port-of-entry prices in the 4 study countries 3. Within-country price transmission 4. Simulations of the impacts of global oil and maize price changes on local maize prices

6. Global oil prices and global maize prices 1990-2012 (Nominal)

7. Global oil prices and global maize prices Oct 2006 - Nov 2012 (Nominal)

8. Price correlations at the global level Jan 1990 - Nov 2012 Jan 1990 - Sep 2006 Oct 2006 - Nov 2012 Nominal Avg oil price ($/bl) Avg maize price ($/mt) Correlation 41.38 136.65 0.83 25.61 107.78 -0.11 84.79 216.17 0.81 Real Avg oil price ($/bl) Avg maize price ($/mt) Correlation Source: World Bank GEM commodity database 47.96 183.96 0.45 39.38 184.76 0.58 71.59 181.76 0.74

9. Testing for cointegration Is there a long-run relationship between oil and maize prices that can be described as follows Poil = + PMaize + where is white noise ? 1990-2012: No 2006-2012: No Exclude the constant: No Include a trend: No

10. VAR: global prices (1/2) Oil price equation Jan 1990 - Nov 2012 0.332*** 0.064 0.061 0.062 0.083*** 0.024 0.006 0.025 0.119 0.232 0.22 271 Oct 2006 - Nov 2012 0.284* 0.136 0.127 0.121 0.122* 0.05 0.009 0.05 0.033 0.742 0.305 72 Oct 2006 - Nov 2012 0.303** 0.117 0.098 0.104 0.119* 0.048 0.012 0.048 0.036 0.742 0.304 72 LD.Oil price ($/bl) L2D.Oil price ($/bl) LD.Maize price ($/mt) L2D.Maize price ($/mt) Constant R2 N

11. VAR: global prices (2/2) Maize price equation Jan 1990 - Nov 2012 -0.232 0.169 0.121 0.163 0.206** 0.064 0.107 0.065 0.564 0.61 0.055 271 Oct 2006 - Nov 2012 -0.104 0.37 0.158 0.33 0.13 0.135 0.064 0.136 1.927 2.024 0.024 72 Oct 2006 - Nov 2012 LD.Oil price ($/bl) L2D.Oil price ($/bl) LD.Maize price ($/mt) 0.11 0.117 0.08 0.117 1.943 2.023 0.021 72 L2D.Maize price ($/mt) Constant R2 N

12. Global price co-movement: summary 1. Global oil and maize prices are highly correlated, especially since passage of the 2005 US Energy Act 2. But: No stationary long-run relationship is evident Causation is not clear

13. Port-of-entry (POE) prices Each study country has one major POE market: Addis Ababa, Ethiopia Mombasa, Kenya Dar es Salaam, Tanzania Kampala, Uganda Most international trade passes through these markets

14. Study markets

15. Global oil prices and Dar es Salaam fuel prices

16. Global maize prices and Dar es Salaam maize prices

17. Global oil prices and POE fuel prices We use an error-correction framework: (1) (2) Exchange rates and CPI are from the IMF IFS database

18. Global oil prices and POE fuel prices Second-stage ECM results Tazania -0.075*** -0.042 3.408*** 1.549 -0.921 0.409* 0.198 Kenya -0.051*** 0.263*** 0.213*** 0.181*** -0.055 0.096 0.320*** Uganda -0.057*** 0.158** 0.905 7.981* 0.115 -0.163 0.432*** L.ECT LD.POE price (Local/L) LD.Global oil ($/bl) D.Domestic CPI LD.Domestic CPI D.ER Local/USD LD.ER Local/USD R2 N Mean POE price (Local/L) 0.21 118 1282.60 0.61 142 69.55 0.17 142 2175.71

19. Global oil prices and Addis Ababa fuel prices

20. Global oil prices and Addis Ababa fuel prices Ethiopia, second-stage ECM and VAR results VAR w/ constant ECM VAR L.ECT D.Domestic CPI D.ER ETB/USD LD.POE price (ETB/L) LD.Global oil ($/bl) LD.Domestic CPI LD.ER ETB/USD Constant R2 N Mean POE price (Local/L) -0.007 0.01 -0.097 0.441*** 0.020*** -0.001 0.475*** 0.01 -0.103 0.435*** 0.020*** 0 0.467*** 0.009 -0.117 0.431*** 0.020*** -0.001 0.455*** 0.022 0.39 136 0.44 136 0.44 136 8.15 8.15 8.15

21. Maize net imports, 2000-2010 Country Quantity (metric tons) Ethiopia Kenya Tanzania Uganda Mean Min Max 22,236 295,493 18,690 -21,366 -9,659 -13,711 -88,937 -125,857 59,599 1,502,523 272,193 34,371 Net imports as % of domestic production Ethiopia Kenya 11.7% Tanzania Uganda -1.6% Source: FAOSTAT 0.6% -0.3% -0.6% -3.0% -9.2% 1.5% 61.6% 8.0% 3.2% 0.5%

22. Global maize prices and POE maize prices Second-stage ECM results Ethiopia Kenya Tanzania Uganda L.ECT -0.153*** -0.115*** -0.085*** -0.158*** D.Domestic CPI 0.032*** 0.157** 4.030** 4.389 D.ER Local/USD -0.014 -0.084 0.023 0.095 LD.POE maize (Local/kg) 0.176** 0.226*** 0.334*** 0.225*** LD.Global maize ($/mt) -0.004** 0.016 -0.276* 0.12 LD.Domestic CPI -0.006 0.001 -0.334 0.267 LD.ER Local/USD -0.063 0.223** -0.064 -0.051 R2 N Mean POE maize price 0.183 142 979.76 0.241 141 17.54 0.465 142 2.04 0.247 142 244.62

23. Within-country price transmission We repeat this procedure for each sub-national market, treating the POE price as exogenous Oil prices: rapid return to long-run equilibrium: 2-5 months across study markets Maize prices: similarly rapid 1-3 months in Ethiopia, Kenya, Tanzania 3-6 months in Uganda

24. Within-country price transmission Maize price equations directly allow for local fuel price effects: (5) (6)

25. Simulations To simulate the impact of global oil and maize price changes on local maize prices, we use the co- integrating vectors (long-run relationships) We consider 3 scenarios: 1. 25% increase in global oil prices above the 2012 average 2. 25% increase in global maize prices above the 2012 average 3. Both increases simultaneously

26. Simulation: results % change in maize price, over 2012 average* Scenario 1 Scenario 2 Scenario 3 0.00 37.09 0.10 36.16 0.79 34.26 -1.29 35.39 3.09 20.29 0.00 21.44 1.70 19.45 0.22 23.50 1.06 25.35 0.00 26.43 0.68 26.02 9.04 16.34 5.54 19.75 6.27 21.08 0.00 30.38 -0.98 31.71 13.57 21.21 Avg annual inflation, 2000- 2012 11.93 11.93 11.93 11.93 10.34 10.34 10.34 10.34 6.70 6.70 6.70 6.70 6.70 8.02 8.02 8.02 8.02 Country Ethiopia Market Addis Ababa Bahir Dar Dire Dawa M'ekele Kisumu Mombasa Nairobi Nakuru Arusha Dar es Salaam Dodoma Kigoma Mbeya Gulu Kampala Mbale Mbarara 37.09 36.26 35.05 34.10 23.38 21.44 21.15 23.72 26.41 26.43 26.70 25.38 25.29 27.35 30.38 30.73 34.78 Kenya Tanzania Uganda

27. Conclusions At this stage our findings indicate: 1. Oil and maize prices co-move on global markets, but with no clear causation 2. Within-country, POE price changes are rapidly transmitted to other markets 3. Global price changes are slower to impact POE prices, likely because of policy-induced frictions 4. Higher oil prices would put some upward pressure on maize prices, but the effects are small compared to those due to maize prices themselves