Transmission of World Food Price Changes to Markets in Sub-Saharan Africa

from International Food Policy Research Institute
Published on 31 Dec 2010 View Original
The global food crisis of 2007-2008 was characterized by a sharp spike in the prices of most commodities, including staple grains. This analysis examines the degree to which changes in world food markets influence the price of staple foods in Sub-Saharan Africa. The analysis is based on more than 60 price series from 11 African countries. After examining price trends over 2007-2008, we use an error correction model to estimate the degree of price transmission. The results of this analysis indicate the following:

- Staple food prices in these countries rose 63 percent between mid-2007 and mid-2008, about three-quarters of the proportional increase in world prices.

- Statistical analysis over 5 to 10 years indicates a long-term relationship with world prices in only 13 of the 62 African food prices examined. African rice prices are more closely linked to world markets than are maize prices.

- The global food crisis was unusual in influencing African food prices, probably because of the size of the increase and the fact that it coincided with oil price increases. Policy responses and local factors exacerbated the effect in some cases.

This suggests that African governments can reduce vulnerability to external food price shocks by investing in agricultural research, pursuing more predictable policies, facilitating grain trade, and promoting diversification in staples consumption. Trade-based food self-sufficiency policies will raise food prices but without necessarily reducing price volatility.

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