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Review of changes in domestic cereal prices during the global price spikes

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Working Papers & Briefs
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Market / Trade
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Risk reduction/mitigation
Ramesh Sharma
Food and Agriculture Organization of the United Nations (FAO)

AMIS aims at improving the collection of statistics on various aspects of the national food economy and analyse them with a view to improving the policy process for containing excessive volatility. It is in this context that this first issue of the AMIS output includes an analysis of the national experiences on recent changes in domestic cereal prices.

During the periods of global food crisis and price spikes that have occurred since mid-2007, there have been reports of widespread price rises across the world. Changes in domestic prices are determined by a number of factors, one of them being prices in the world markets. The strength of this relationship varies across countries and commodities depending on several factors, such as the level of selfsufficiency, natural barriers and policies that moderate the transmission. For example, domestic rice prices in Africa are often found to be more closely linked to the world price than domestic maize prices for the simple reason that the volume of maize imports in Africa is very small and so domestic output and other factors play the dominant role. A proper analysis of price transmission would use econometric techniques and include these factors, besides the changes in the world prices. Future AMIS information briefs should be based on such analysis. But the review below is mostly descriptive, essentially documenting how much cereal prices changed domestically. To demonstrate the order of the magnitude involved, these changes are expressed relative to the changes in the world market prices during the periods corresponding to the spikes, not necessarily implying transmission in the sense understood in the econometric literature on market integration. Thus, although the term “transmission rate” is used below, this is essentially a ratio of the change in the domestic price to that in the world price.

The review utilizes 155 series of domestic cereal prices cereal prices from 52 countries, maintained by the FAO Global Information and Early Warning System (GIEWS). It covers five periods when the spikes occurred in the world markets: three in 2007/08 consisting of one each for rice, wheat and maize; and two in 2010/11 consisting of one each for wheat and maize. The domestic data show that for most countries cereal prices did not stop rising when the spike ended in the world markets but continued to rise strongly for two to three months more, reflecting lagged transmissions. For this reason, two additional months are added for computing changes in the domestic prices.