Regional Food Price Inflation Transmission

Abstract

Understanding to what extent and speed agricultural commodity price changes on international markets are transmitted to consumers is key in assessing the vulnerability of households to price shocks. The importance of these transmission indicators is compounded, in developing countries, by the fact that consumers tend to spend a higher proportion of their income on food items. Regional estimates of food inflation transmission can also be used to predict consumer-level impacts of international price shocks, contributing to improve the information basis on which to base policy mitigation actions and to focus on the areas likely to suffer the most. The aim of this paper is to provide estimates of the transmission of price changes from international commodity markets to consumers in different regions of the world, using monthly data from FAO's Food Price Indices and Regional Food Consumer Price Indices. This econometric analysis, which uses impulse response functions from error-correction models, is useful in establishing typologies of regions with respect to the extent and speed of price transmission processes.

The linkage between the U.S. ethanol market and developing countries’ maize prices: a panel SVAR analysis

“…The results again indicate a weak, if any, relation of food dependency with a country's maize price from a U.S. maize market shock. This result supports the conclusion by Cachia (), which states the relative size of a domestic response depends on the share of imports in domestic demand (import dependency ratio). Note that the World Bank cereal import dependency ratio was also considered with similar results in terms of signs and significance, which indicates the robustness of the results.…”

“…As concluded by Cachia (), the maximum impact of a shock in developing regions is generally felt within the initial months, with the domestic adjustment varying by country. In this vein, the first three‐post shock months are considered.…”

Food Price Volatility and Its Implications for Food Security and Policy

“…The paper also provides a pragmatic way to deal with the heterogeneity of local food staples by creating a domestic grain price index which is highly relevant to the poor and vulnerable population. Our grain price index is preferable to the food price indices from national statistical agencies used in FAO (2013), Cachia (2014), andIanchovichina et al (2012) because the latter often contain processed and luxury food items that are of little relevance to the poor. As for these products, material costs play a minor role; therefore, using official food price indices would likely result in an underestimation of the degree of price transmission to the costs of the food basket of poor people.…”

“…They found that most consumer markets in developing countries are co-integrated with world markets although their speed of equilibrium adjustment is rather low. Cachia (2014) provided an overview of different concepts and models of price transmission and estimated market integrations and price transmission between the FAO (global) food price index and regionally aggregated food price indices (based on consumer price indices from national statistical agencies). His findings suggest limited market integration and rather slow transmission, which might be related to the use of aggregated food price indices as discussed above.…”

How Strong Do Global Commodity Prices Influence Domestic Food Prices in Developing Countries? A Global Price Transmission and Vulnerability Mapping Analysis

“…The paper also provides a pragmatic way to deal with the heterogeneity of local food staples by creating a domestic grain price index which is highly relevant to the poor and vulnerable population. Our grain price index is preferable to the food price indices from national statistical agencies used in FAO (2013), Cachia (2014), and Ianchovichina et al (2012) because the latter often contain processed and luxury food items that are of little relevance to the poor. As for these products, material costs play a minor role; therefore, using official food price indices would likely result in an underestimation of the degree of price transmission to the costs of the food basket of poor people.…”