Market Analysis for Effective Food Security Programming

1. Market Analysis for Effective Food Security Programming IFADC May 7, 2012 Prepared by USAID-BEST Project/Fintrac Inc.

2. 2012 IFADC: Market Analysis Overview • Theory: Key Elements & Approaches • Practice: Challenges & Insights • Q&A Fintrac/USAID-BEST Ethiopia Study, 2010

3. Food Aid: Intervention Tools To improve food security for vulnerable populations, donors can use a number of food aid tools: • Direct distribution • Monetization • Local or regional procurement (LRP) • Cash transfers • Vouchers Fintrac/USAID-BEST Zimbabwe Study, 2012

4. Market Analysis to Maximize Impact & Efficiency, Minimize Risk We want to maximize food security impact, and maximize efficient use of scarce resources We don’t want to risk hurting the very people we are trying to help, by: • Encouraging dependency • Putting people out of business • Competing with farmers for labor • Supporting corruption • Supporting uncompetitive markets • Creating inflation Fintrac/USAID-BEST Guatemala Study, 2011

5. How Does the Market View Food Aid? Distributed food aid: • An increase in the local food supply • An (in-kind) income transfer to a household Monetized food aid: • An (ad hoc) increase in the local food supply induced by a non-commercial market actor Local procurement of food aid/cash/vouchers: • An (ad hoc) increase in demand for the local food supply Fintrac/USAID-BEST Guatemala Study, 2011

6. What Happens When Supply Increases? Supply S0 S1 Price Monetized/Distributed P0P0 Pe P0P1 Demand D0 Q0 Q0 Q1 Q1 Q1 Quantity supplied or demanded Fintrac/USAID-BEST Zimbabwe Study, 2012 Fintrac/USAID-BEST Ethiopia Study, 2010

7. What Happens when Demand Increases? Supply S0 Price LRP/cash/ vouchers P1 Pe P0 Demand D1 D0 Q0 Q1 Quantity supplied or demanded Fintrac/USAID-BEST Zimbabwe Study, 2012 Fintrac/USAID-BEST Ethiopia Study, 2010

8. Key Factors to Safeguard Markets Distributed food aid: • Effective targeting (who, where, what, when, how much) Monetized food aid: • Fair market price • Volumes small relative to local market’s supply LRP/cash/vouchers: • Effective targeting (who, where, what, when, how much) • Supply able to expand to increased demand Fintrac/USAID-BEST Zimbabwe Study, 2012

9. Moving from Theory to Practice • Analytical frameworks • Data/information needs • Real-life challenges Fintrac/USAID-BEST Guatemala Study, 2011

10. What Types of Analytical Frameworks Exist? • Market Information Food Insecurity Response Analysis (MIFIRA) • Emergency Market Mapping and Analysis (EMMA) • Structure Conduct Performance (SCP) Fintrac/USAID-BEST Zimbabwe Study, 2012

11. Market Information Food Insecurity Response Analysis (MIFIRA) • Development/emergency • Designed for specialist? • Key feature: decision tree

12. Emergency Market Mapping and Analysis (EMMA) • Emergency • Designed for layman • Key feature: market map

13. Structure Conduct Performance Framework Performance outcomes of market interactions (e.g. prices) Basic conditions: Seasons and seasonality, infrastructure, consumer preferences, income distribution, stability, government policies Structure relatively stable features of market environment (# and concentration of buyers and sellers, barriers to entry and exit, vertical and horizontal coordination, and licensing requirements) Conduct behavior and strategies of market actors (price setting behavior, buying and selling practices, informal norms of trade, and information use)

14. Do I Really Need One of Those Analytical Frameworks? • Depends on objective… • Cherry pick from one framework based on your objective: • MIFIRA – which response is most appropriate • EMMA – inform emergency response • SCP – broad understanding of markets Fintrac/USAID-BEST Guatemala Study, 2011

15. What Do We Need to Know, and Where Do We Find It? • Household needs (demand) • How local markets ‘work’ (supply, demand, price formation) • Primary sources • Secondary sources • Secondary • Vulnerability assessments, livelihood profiles, consumption and expenditure surveys • Crop assessments • Trade statistics • Price monitoring: gov’t, FEWS, WFP, FAO, etc. • Primary • Formal and informal surveys of market actors (producers, traders, wholesalers, retailers, consumers) – esp. producer and trader conduct

16. How Do We Get the Information We Need? • Desk research • Existing market analyses including past Bellmon analyses, food security reports • Prices, production, trade, and food aid data from international and local data collection systems • In-field research • Interviews with private sector, various levels of government, communities, NGOs, and UN agencies • Market visits Fintrac/USAID-BEST Zimbabwe Study, 2012

17. What we’ve covered: • Basic principles • Analytical framework • General data/information needs • So, now what? • Practical challenges translating theory into practice

18. Practical Challenge • Production, trade, and food aid data from desk research are often unreliable or incomplete

19. Production • Lack of resources to conduct frequent assessments • Sometimes politicized • Validation in field is critical, but also imperfect

20. Imports • Lack of resources to monitor and report • Importers’ incentive to evade customs duties

21. Food Aid • Not all donors report to online databases • Among donors who report, reporting is often inconsistent • FY vs CY vs MY • Does not specify whether monetized or distributed food aid

22. Practical Challenges • Commodity markets are complex. Fintrac/USAID-BEST Haiti Study, 2011

24. Questions So Far? Market Analysis: Piece of Cake, or Piece of Work?

25. Practical Challenge • People sometimes tell you what they think you want to hear…or what they want you to believe. Fintrac/USAID-BEST Haiti Study, 2012 Fintrac/USAID-BEST Guatemala Study, 2011

26. Price • Definition • Types • Lack of market information systems • Asymmetries • Fair market price • Objective measure of fair market price: Import Parity Price (IPP) Fintrac/USAID-BEST DR Congo Study, 2010

27. Import Parity Price (IPP) • Value of a unit of product brought from a foreign country and priced at a geographic location of interest in the importing country. Fintrac/USAID-BEST Honduras Study, 2011

28. Calculating IPP: • Import data (assess likely country of origin) • Commodity cost (in likely country of origin) • Ocean transport (from likely country of origin) • Insurance fees, port charges at port of entry • Custom duties and taxes (if applicable) • Inland transport costs to eventual point of sale (if applicable) • Storage, operational fees, etc. (if applicable)

29. Determining Country of Origin Ex: UN Comtrade – Wheat Imports

30. Example of IPP Calculation

31. Practical Challenge • USG implementing partners have rich experience with demand-side constraints • Newer tools -- LRP/cash/vouchers -- require understanding supply-side constraints as well Fintrac/USAID-BEST Haiti Study, 2011

32. Practical Challenge • Markets are dynamic.

33. Resources USAID-BEST • Reading Lists • List of Data & Information Resources • www.usaidbest.org • Trade groups • Government ministries • Universities • TOPS, Learning Alliance, FEWS NET, FAO, etc. External organizations Your colleagues

34. Market Analysis for Effective Food Security Programming • Questions? • Comments? Fintrac/USAID-BEST Haiti Study, 2012 Fintrac/USAID-BEST Peru Study, 2011

35. Thank You! IFADC May 7, 2012 Prepared by USAID-BEST Project/Fintrac Inc.