LRP and Market Prices: A Multi-Country Analysis Teevrat Garg Christopher B. Barrett Miguel I. Gómez Erin C. Lentz William Violette Cornell University FAO ISN-Symposium January, 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 Framework Procurement Motivation Price Quantity P* Q* Exogenous Demand Shift from Procurement D S Prices Rise D’

Motivation for Framework Distribution Motivation Price Quantity P* Q* Exogenous Supply Shift from Distribution Prices fall D SS’

Motivation for Framework  Retail prices only (wholesale for Kenya). Scope of the Study Motivation Table 1: Types of LRP Projects By Country and Commodity CountryProcurementDistributionVoucher Burkina FasoMilletMillet, Cowpeas Guatemala Beans, Incaparina, White Maize KenyaBeans, Maize KyrgyzstanWheat (Cash) NigerMaize, MilletMaize, Cowpeas Uganda Maize Flour, Maize Grain, Dried Beans, Sorghum ZambiaMaize Meal, Beans

6 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

7 Key Results: Procurement(Price Levels) CountryMaizeBeansMillet Burkina Faso1.386 (3.814) In Procurement0.760 Markets(7.088) In Non-Procurement1.525 Markets(4.620) Guatemala (6.097)(1.245) In Procurement Markets(3.982)(4.430) In Non-Procurement Markets(6.948)(1.277) Kenya11.68***2.892 (3.005)(3.113) In Procurement10.99* Markets(6.451)(7.112) In Non-Procurement11.84***4.088 Markets(3.484)(3.577) Niger (1.625)(1.355) In Procurement Markets(14.90)(2.969) In Non-Procurement Markets(1.622)(1.543) Zambia (6.484)(2.859) In Procurement Markets(12.22)(7.003) In Non-Procurement Markets(7.607)(2.926)

8 Key Results: Procurement(Price Volatility) CountryMaizeBeansMillet Burkina Faso (2.670) In Procurement Markets(4.452) In Non-Procurement Markets(3.337) Guatemala (5.584)(0.806) In Procurement Markets(2.497)(2.888) In Non-Procurement Markets(6.369)(0.822) Kenya (1.904)(2.028) In Procurement Markets(3.003)(4.107) In Non-Procurement Markets(2.243)(2.369) Niger (1.862)(0.872) In Procurement Markets(11.07)(1.656) In Non-Procurement Markets(3.235)(0.978) Zambia (4.138)(1.938) In Procurement Markets(6.533)(3.930) In Non-Procurement Markets(4.761)(1.982)

9 Key Results: Distribution(Price Levels) CountryMillet/MaizeDried BeansCowpeas Burkina Faso (Millet, not Maize) (4.553)(11.03) In Distribution Markets(11.80) In Non-Distribution Markets(5.033)(9.486) Niger * (1.707)(8.904) In Distribution-- Markets In Non-Distribution Markets(1.738)(8.172) Zambia (6.628)(4.162) In Distribution Markets(28.69) In Non-Distribution Markets(4.216)

10 Key Results: Distribution(Price Volatility) CountryMillet/MaizeDried BeansCowpeas Burkina Faso (Millet, not Maize)9.800***0.932 (3.299)(7.184) In Distribution11.34 Markets(7.187) In Non-Distribution8.775**1.849 Markets(3.848)(5.657) Niger3.854***36.06** (1.204)(15.24) In Distribution- Markets In Non-Distribution3.859***22.73 Markets(1.228)(16.66) Zambia (4.102)(2.817) In Distribution Markets(14.53) In Non-Distribution Markets(2.860)

11 Key Results: Cash and Vouchers(Price Levels) CountryMaize GrainSorghumWheat Kyrgyzstan6.528*** (1.908) In Procurement- Markets In Non-Procurement6.004*** Markets(2.095) Uganda (11.38)(12.96) In Procurement-- Markets In Non-Procurement Markets(14.10)(16.35)

12 CountryMaize GrainSorghumWheat Kyrgyzstan0.622 (1.204) In Procurement- Markets In Non-Procurement0.716 Markets(1.314) Uganda (7.518)(7.792) In Procurement-- Markets In Non-Procurement Markets(8.562)(10.89) Key Results: Cash and Vouchers(Price Volatility)

13 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

14 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

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