Analyzing Local Procurement and Market Prices Across Multiple Countries

The study delves into the effects of local procurement on market prices and price volatility across various countries. It explores the motivations behind studying price effects, the impact of procurement and distribution on prices, and the scope of the analysis focusing on retail prices. The identification strategy and key results from different countries such as Burkina Faso, Guatemala, Kenya, Niger, and Zambia are presented and discussed.

• Procurement Analysis
• Market Prices
• Price Effects
• Price Volatility
• Global Study

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1. LRP and Market Prices: A Multi-Country Analysis Teevrat Garg Christopher B. Barrett Miguel I. G mez Erin C. Lentz William Violette Cornell University FAO ISN-Symposium January, 2012

2. Motivation Why Study Price Effects? Motivation for Framework Local procurement is a demand stimulus that could put upward pressures on local prices and price volatility. Local distribution is a supply stimulus that could place downward pressures on local prices and fuel price volatility. USDA requires LRP to meet the do no harm condition, that is, LRP should not substantially drive up retail prices. Simple monitoring of prices cannot control for confounding factors, including WFP procurements, climate fluctuations, inflation, seasonal variation, changing transport costs, etc.

3. Motivation Procurement Motivation for Framework Exogenous Demand Shift from Procurement Price S P* Prices Rise D D Quantity Q*

4. Motivation Distribution Motivation for Framework Price S S Exogenous Supply Shift from Distribution P* Prices fall D Quantity Q*

5. Motivation Scope of the Study Motivation for Framework Retail prices only (wholesale for Kenya). Table 1: Types of LRP Projects By Country and Commodity Country Procurement Burkina Faso Millet Distribution Millet, Cowpeas Voucher Beans, Incaparina, White Maize Beans, Maize Guatemala Kenya Kyrgyzstan Niger Beans, Maize Wheat (Cash) Maize, Millet Maize, Cowpeas Maize Flour, Maize Grain, Dried Beans, Sorghum Uganda Zambia Maize Meal, Beans Maize Meal, Beans

6. Identification Strategy Identification Strategy Price Level Impacts: Price Volatility Impacts: X = Full Set of Controls (WFP included) c: commodity s: price type (transmission channel) i: region t: time period 6

7. Key Results: Procurement(Price Levels) Country Burkina Faso Maize Beans Millet 1.386 (3.814) 0.760 (7.088) 1.525 (4.620) In Procurement Markets In Non-Procurement Markets -3.473 (6.097) -4.261 (3.982) -3.389 (6.948) 0.536 (1.245) 5.592 (4.430) -0.178 (1.277) Guatemala In Procurement Markets In Non-Procurement Markets 11.68*** (3.005) 10.99* (6.451) 11.84*** (3.484) 2.892 (3.113) -1.236 (7.112) 4.088 (3.577) Kenya In Procurement Markets In Non-Procurement Markets 2.123 (1.625) 5.958 (14.90) 2.091 (1.622) -1.285 (1.355) -0.883 (2.969) -2.284 (1.543) Niger In Procurement Markets In Non-Procurement Markets -3.860 (6.484) -3.187 (12.22) -3.905 (7.607) -1.078 (2.859) 10.03 (7.003) -1.259 (2.926) Zambia In Procurement Markets In Non-Procurement Markets 7

8. Key Results: Procurement(Price Volatility) Country Maize Beans Millet -1.185 (2.670) -1.990 (4.452) -0.626 (3.337) Burkina Faso In Procurement Markets In Non-Procurement Markets 3.318 (5.584) 2.989 (2.497) 3.190 (6.369) -1.077 (0.806) -1.803 (2.888) -0.745 (0.822) Guatemala In Procurement Markets In Non-Procurement Markets -0.670 (1.904) -2.440 (3.003) -0.574 (2.243) -0.690 (2.028) 0.346 (4.107) 0.204 (2.369) Kenya In Procurement Markets In Non-Procurement Markets 0.505 (1.862) -3.683 (11.07) 1.066 (3.235) -1.161 (0.872) -1.428 (1.656) -0.927 (0.978) Niger In Procurement Markets In Non-Procurement Markets -6.139 (4.138) -6.699 (6.533) -6.711 (4.761) 0.533 (1.938) -4.115 (3.930) 0.495 (1.982) Zambia In Procurement Markets In Non-Procurement Markets 8

9. Key Results: Distribution(Price Levels) Country Millet/Maize Dried Beans Cowpeas Burkina Faso (Millet, not Maize) -3.055 (4.553) -5.429 (11.80) -2.298 (5.033) 10.32 (11.03) - In Distribution Markets In Non-Distribution Markets 11.31 (9.486) Niger 1.755 (1.707) - -14.97* (8.904) - In Distribution Markets In Non-Distribution Markets 1.736 (1.738) -10.21 (8.172) Zambia -9.734 (6.628) - 3.841 (4.162) -6.875 (28.69) 4.261 (4.216) In Distribution Markets In Non-Distribution Markets - 9

10. Key Results: Distribution(Price Volatility) Country Millet/Maize Dried Beans Cowpeas Burkina Faso (Millet, not Maize) 9.800*** (3.299) 11.34 (7.187) 8.775** (3.848) 0.932 (7.184) In Distribution Markets In Non-Distribution Markets 1.849 (5.657) Niger 3.854*** (1.204) - 36.06** (15.24) In Distribution Markets In Non-Distribution Markets 3.859*** (1.228) 22.73 (16.66) Zambia -4.020 (4.102) - 2.470 (2.817) -4.865 (14.53) 2.309 (2.860) In Distribution Markets In Non-Distribution Markets - 10

11. Key Results: Cash and Vouchers(Price Levels) Country Maize Grain Sorghum Wheat Kyrgyzstan 6.528*** (1.908) In Procurement - Markets In Non-Procurement 6.004*** Markets (2.095) Uganda -3.666 -2.941 (11.38) (12.96) In Procurement - - Markets In Non-Procurement -2.238 -5.987 Markets (14.10) (16.35) 11

12. Key Results: Cash and Vouchers(Price Volatility) Country Maize Grain Sorghum Wheat Kyrgyzstan 0.622 (1.204) In Procurement - Markets In Non-Procurement 0.716 Markets (1.314) Uganda -3.434 -5.310 (7.518) (7.792) In Procurement - - Markets In Non-Procurement -3.474 -3.055 Markets (8.562) (10.89) 12

13. Conclusion Limitations Not strictly causal estimates due to potential for omitted relevant variables (e.g., government policies). Unable to control for GE effects (typical for this literature) Potential endogeneity of prices and LRP (timing and quantity). Good News: Practitioners control this mechanism! 13

14. Conclusion Policy Implications For most commodities and countries, there is no economically or statistically significant correlation of LRP and prices. In a very small number of instances, procurement is correlated with upward price pressures, consistent with economic theory. The possibility of significant induced price effects underscores the importance of market monitoring. The relative infrequency of such effects suggests that LRP can be undertaken effectively when well designed and monitored. Distribution may be more of a concern when it comes to price impacts. 14

15. Contact Information We Welcome Your Comments Teevrat Garg Charles H. Dyson School of Applied Economics and Management Cornell University tg236@cornell.edu 15