LRP and Market Prices:A Multi-Country Analysis
Teevrat GargChristopher B. Barrett
Miguel I. GómezErin C. Lentz
William Violette
Cornell University
FAO ISN-SymposiumJanuary, 2012
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.
Why Study Price Effects?
Motivation
Motivation for FrameworkProcurement
Motivation
Price
Quantity
P*
Q*
Exogenous Demand Shift from Procurement
D
S
Prices Rise
D’
Motivation for FrameworkDistribution
Motivation
Price
Quantity
P*
Q*
Exogenous Supply Shift from Distribution
Prices fall
D
S S’
Motivation for Framework Retail prices only (wholesale for Kenya).
Scope of the Study
Motivation
Table 1: Types of LRP Projects By Country and CommodityCountry Procurement Distribution Voucher
Burkina Faso Millet Millet, Cowpeas
GuatemalaBeans, Incaparina, White Maize
Kenya Beans, Maize Beans, Maize
Kyrgyzstan Wheat (Cash)
Niger Maize, Millet Maize, Cowpeas
Uganda
Maize Flour, Maize Grain, Dried Beans, Sorghum
Zambia Maize Meal, Beans Maize Meal, Beans
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Identification Strategy
Identification Strategy
Price Level Impacts:
Price Volatility Impacts:
X = Full Set of Controls (WFP included)c: commoditys: price type (transmission channel)
i: regiont: time period
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Key Results: Procurement(Price Levels)
Country Maize Beans MilletBurkina Faso 1.386
(3.814)In Procurement 0.760Markets (7.088)In Non-Procurement 1.525Markets (4.620)
Guatemala -3.473 0.536(6.097) (1.245)
In Procurement -4.261 5.592Markets (3.982) (4.430)In Non-Procurement -3.389 -0.178Markets (6.948) (1.277)
Kenya 11.68*** 2.892(3.005) (3.113)
In Procurement 10.99* -1.236Markets (6.451) (7.112)In Non-Procurement 11.84*** 4.088Markets (3.484) (3.577)
Niger 2.123 -1.285(1.625) (1.355)
In Procurement 5.958 -0.883Markets (14.90) (2.969)In Non-Procurement 2.091 -2.284Markets (1.622) (1.543)
Zambia -3.860 -1.078(6.484) (2.859)
In Procurement -3.187 10.03Markets (12.22) (7.003)In Non-Procurement -3.905 -1.259Markets (7.607) (2.926)
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Key Results: Procurement(Price Volatility)
Country Maize Beans Millet
Burkina Faso -1.185(2.670)
In Procurement -1.990Markets (4.452)In Non-Procurement -0.626Markets (3.337)
Guatemala 3.318 -1.077(5.584) (0.806)
In Procurement 2.989 -1.803Markets (2.497) (2.888)In Non-Procurement 3.190 -0.745Markets (6.369) (0.822)
Kenya -0.670 -0.690(1.904) (2.028)
In Procurement -2.440 0.346Markets (3.003) (4.107)In Non-Procurement -0.574 0.204Markets (2.243) (2.369)
Niger 0.505 -1.161(1.862) (0.872)
In Procurement -3.683 -1.428Markets (11.07) (1.656)In Non-Procurement 1.066 -0.927Markets (3.235) (0.978)
Zambia -6.139 0.533(4.138) (1.938)
In Procurement -6.699 -4.115Markets (6.533) (3.930)In Non-Procurement -6.711 0.495Markets (4.761) (1.982)
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Key Results: Distribution(Price Levels)
Country Millet/Maize Dried Beans Cowpeas
Burkina Faso (Millet, not Maize) -3.055 10.32(4.553) (11.03)
In Distribution -5.429 -Markets (11.80)In Non-Distribution -2.298 11.31Markets (5.033) (9.486)
Niger 1.755 -14.97*(1.707) (8.904)
In Distribution - -MarketsIn Non-Distribution 1.736 -10.21Markets (1.738) (8.172)
Zambia -9.734 3.841(6.628) (4.162)
In Distribution - -6.875Markets (28.69)In Non-Distribution - 4.261Markets (4.216)
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Key Results: Distribution(Price Volatility)
Country Millet/Maize Dried Beans Cowpeas
Burkina Faso (Millet, not Maize) 9.800*** 0.932(3.299) (7.184)
In Distribution 11.34Markets (7.187)In Non-Distribution 8.775** 1.849Markets (3.848) (5.657)
Niger 3.854*** 36.06**(1.204) (15.24)
In Distribution -MarketsIn Non-Distribution 3.859*** 22.73Markets (1.228) (16.66)
Zambia -4.020 2.470(4.102) (2.817)
In Distribution - -4.865Markets (14.53)In Non-Distribution - 2.309Markets (2.860)
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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)
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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)
Key Results: Cash and Vouchers(Price Volatility)
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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!
Conclusion
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• 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.
Conclusion
Policy Implications
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Teevrat GargCharles H. Dyson School of
Applied Economics and ManagementCornell University
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