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AAMP Training Materials

AAMP Training Materials. Steven Haggblade ( MSU ) blade@msu.edu. Module 4.2: Import & Export Parity Pricing. Module Contents. Objectives Background material Exercises Conclusions. Objectives. Understand border prices’ ability to moderate food price fluctuations

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AAMP Training Materials

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  1. AAMP Training Materials Steven Haggblade (MSU) blade@msu.edu Module 4.2: Import & Export Parity Pricing

  2. Module Contents • Objectives • Background material • Exercises • Conclusions

  3. Objectives • Understand border prices’ ability to moderate food price fluctuations • Import parity price (IPP) • Export parity price (EPP) • Be able to compute border prices • Examine policies that undermine the moderating effects of IPP and EPP

  4. Background Material • Discuss domestic price under two scenarios • Scenario 1: Drought reduces maize supply below normal • Scenario 2: Bumper harvest expands maize supply above normal • Examine the impact of these two scenarios with and without open borders

  5. Domestic Price Price $ / ton D S0 300 200 100 Quantity

  6. Scenario 1: Drought Price $ / ton D S1 S0 300 200 100 Quantity

  7. Drought + ClosedBorders Price $ / ton D S1 S0 300 200 100 Quantity

  8. Drought + OpenBorders Price $ / ton D S1 S0 300 Pm 200 100 Quantity

  9. Domestic Price Price $ / ton D S0 300 200 100 Quantity

  10. Scenario 2: Bumper Harvest Price $ / ton S2 D S0 300 200 100 Quantity

  11. Bumper Harvest + Closed Border Price $ / ton S2 D S0 300 200 100 Quantity

  12. Bumper Harvest + Open Border Price $ / ton S2 D S0 300 200 Pe 100 Quantity

  13. Border Prices Reduce Price Volatility Price $ / ton S2 S1 D S0 300 Pm 200 Pe 100 Quantity

  14. Discussion Questions • When will IPP influence domestic price? • When will EPP influence domestic price?

  15. South Africa domestic and border prices for white maize, 1992 - 2006

  16. Zambia, domestic & border prices for white maize, 2000 - 2006 Drought

  17. Saudi Arabia, domestic and border prices for wheat, 1980 - 2008

  18. Mechanics of computing border prices • Domestic reference price = price in Country 1 • Country 1 is the “home” country • Import parity price = price from Country X • Country X is a potential exporter to Country 1 • Export parity price = price to Country M • Country M is a potential importer from Country 1

  19. Mechanics of Computing IPP • IPP = the price at which purchases in Country X can be delivered to market in Country 1 • Country 1 is home country • Country X produces the good we want at a low price

  20. To Calculate IPP, Need to Include

  21. For example…

  22. Mechanics of computing (EPP) • EPP = the price at which purchases would have to be purchased in Country 1 in order to be sold at market price in Country M • Country 1 is the home country • Country M is a potential importer of the good we have to sell

  23. To Calculate EPP, Need to Include

  24. For example…

  25. 3 Exercises: Computing Border Prices • Use Excel workbook entitled: Module 4.2 – Import and Export Parity Pricing.xls • Exercise 1: Nairobi IPP & EPP Trends • Calculate domestic maize price • Compute and compare IPP Durban & EPP Durban • Exercise 2: Nairobi IPP & EPP Graph • Calculate and graph IPP & EPP Durban • Calculate and graph IPP & EPP Uganda • Exercise 3: Southern Malawi IPP & EPP • Calculate and graph IPP & EPP from N. Mozambique

  26. Discussion Questions • When, if ever, has import parity capped domestic price increases? • Can domestic price ever exceed import parity? • If so, when and why? • If not, why not?

  27. Empirical Conclusions • Open borders reduce price volatility • IPP becomes the upper limit to price fluctuations • EPP becomes lower limit to price fluctuations

  28. Policy Conclusions • Openness to international trade is an effective way to reduce price volatility. • Export bans harm producers by limiting their ability to gain maximum revenue from their sales • Creates disincentive to produce in future • Limiting imports harms consumers by requiring them to purchase high-priced domestic goods • Unnecessary cut into household incomes

  29. References • Dorosh, P.A., Dradri, S. and Haggblade, S. 2009. Regional trade, government policy and food security: Recent evidence from Zambia. Food Policy 34 (2009) 350–366. • Traub, L.N. 2008. South Africa Maize Trade Country Profile. Background report prepared for the World Bank under contract No. 7144132, Strengthening Food Security in Sub-Saharan Africa through Trade Liberalization and Regional Integration. Washington, DC: The World Bank. • Tschirley, D. and Jayne, T.S. 2010. Exploring the Logic behind Southern Africa’s Food Crises. World Development 38(1):76-87.

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