1. TST How Markets Work Session 1.4 WFP Markets Learning Programme1.4. 1 Trader Survey Training V2

2. Learning Objectives After this session, participants should be able to:  Identify and explain the key elements of market functioning, including market structure, conduct and performance  Explain the relevance of structure, conduct and performance in anticipating market response to shocks WFP Markets Learning Programme1.4. 2 Trader Survey Training V2

3. Supply: understanding food production and trading patterns (especially for most important staple foods) Demand: factors that affect household demand (e.g. changes in incomes, purchasing power, preferences) Prices: levels, trends, seasonality Markets: environment & functioning (structure- conduct-performance of “SCP”) - factors influencing trader decisions and behaviour Key elements of market analysis WFP Markets Learning Programme1.4. 3 Trader Survey Training V2

4. Why focus on “SCP”? More comprehensive, forward looking SCP analysis can:  Help analysts anticipate market response, define relevant scenarios, formulate expectations about the season to tell more complete food security story  provide decision makers with info needed to make better responses  help orient timing of humanitarian interventions, complementing & compensating for markets rather than replacing them WFP Markets Learning Programme Price Analysis Training 1.4.4 e.g., Traders plan to import cereals using prices from regional & from international markets. They have strategies for dealing with production shortfalls in their market areas. Learning about trader behaviors helps identify market indicators to follow, analyze implications of market phenomena, project likely supply responses, and ultimate market outcomes.

5. Market environment: external factors affecting market conditions (trade policies…) Key elements for market analysis Understanding Market Functioning WFP Markets Learning Programme1.4. 5 Trader Survey Training V2

6. Market Environment  Economic and Public policies and regulations Price ceilings Trade policies: Import/export regulations Quality control and food safety measures Net Importers vs. Net Exporters (national level) Example: Food price crisis and national policy reactions: subsidies, export bans etc.  Environmental Agro-ecological conditions and seasonal calendars Surplus/deficit areas WFP Markets Learning Programme1.4. 6 Trader Survey Training V2

7. WFP Markets Learning Programme Price Analysis Training 1.4.7 1.What are the main thrusts of the GoE’s food security policy? 2.What are the main challenges confronting the GoE in liberalising its food security policies ? Quick Case: Exercise 1.4.a. Markets & FS Policy in Egypt Task: Read the Quick Case in your workbook and, with a partner, answer the questions.

8. How do trade policies impact markets in this country? WFP Markets Learning Programme1.4. 8 Trader Survey Training V2

9. Market Structure Refers to relatively stable features of market that influence rivalry of buyers and sellers:  Number of buyers & sellers  Barriers to entry (e.g. license fees and taxes, farmer and trader access to credit, kinship ties)  Nature of trading relations: vertical coordination mechanisms, or the ways in which transactions are conducted between market participants (e.g, spot market transactions, contracts, cooperatives, or strategic alliances among farmers, traders, transporters, processors and consumers) WFP Markets Learning Programme1.4. 9 Trader Survey Training V2

10. Structure: Surplus/Deficit Areas - Example District level cereal balances in Timor Leste (2003-2006) WFP Markets Learning Programme1.4. 10 Trader Survey Training V2

11. Structure: Commodity Flows Wheat & wheat flour flows in Caucasus Region WFP Markets Learning Programme1.4. 11 Trader Survey Training V2

12. Structure: Vertical Coordination/Integration Marketing Chain WFP Markets Learning Programme1.4. 12 Trader Survey Training V2

13. Structure: Marketing Chain Channels WFP Markets Learning Programme1.4. 13 Trader Survey Training V2

14. How do marketing chains function in this country? How might a major shock disrupt these chains? WFP Markets Learning Programme1.4. 14 Trader Survey Training V2 Market Structure

15. Market Conduct The patterns of behaviour that traders follow to affect or adjust to changing market conditions:  Price-setting behaviour Level of competition  Buying and selling practices Weights and measures Grades and standards WFP Markets Learning Programme1.4. 15 Trader Survey Training V2

16. WFP Markets Learning Programme1.4. 16 Price Analysis Training Cashew Nut Prices (FCFA) Collection (5), local transport (20) & wholesaler fees (5), wholesaler margin (25), transport to Bissau (10) 170- <-Wholesale Price Tax (14) Exporter Fees (5) & Port Fees (10), Export Tax (47) 246- <-FAS Guinea Bissau Margin – International Trade (92) 338- <-FOB Guinea Bissau Transport Insurance (53) 391- <-CIF Cochin, India Producer costs and profit (105) 105- <-Producer Price in Guinea Bissau Conduct: Market Actor’s Margin Breakdown: from Rural Guinea Bissau to India

17. To what extent is there competition in markets in this country? Or is the market controlled by a few interests? WFP Markets Learning Programme1.4. 17 Trader Survey Training V2 Market Conduct

18. Market Performance Extent to which markets produce outcomes deemed good or preferred by society: regular, predictable availability of basic foods at affordable prices  Price levels and stability over time and space (market integration)  Margins and costs  Volumes  Profits: excessive or not  Product quality  Food distribution within market WFP Markets Learning Programme1.4. 18 Trader Survey Training V2

19. What is Market Integration? The existence of trade flows: the movement of food in response to supply/demand imbalances Market integration allows price signals to be transmitted from one market to another Impact on HH Food Security of market integration? When markets are integrated, prices become more stable: then HH FS is likely to be improved, as poor HHs can obtain food at more affordable prices WFP Markets Learning Programme 4.2. 19 Price Analysis Training

20. Market Performance: Example Real millet prices in regions of Niger and Nigeria, 1995 to 2006 WFP Markets Learning Programme1.4. 20 Trader Survey Training V2

21. How do markets perform in this country? Are prices & supply relatively steady, predictable? Or are extreme fluctuations the norm? WFP Markets Learning Programme1.4. 21 Trader Survey Training V2 Market Performance

22. Market Functioning  Logical conclusion from structure, conduct and performance of markets  Is food moving from where it is produced to where it is needed? WFP Markets Learning Programme1.4. 22 Trader Survey Training V2

23. Application and Interpretation of S-C-P and Market Functioning  Helps anticipate market response to shocks  Can formulate expectations about the season  Implications for cash & voucher programming: helps identify risks related to corruption, inflation & trader response capacities WFP Markets Learning Programme1.4. 23 Trader Survey Training V2

24. Exercise 1.4.b. Market Environment in Malawi WFP Markets Learning Programme Trader Survey Training V2 1.4.24