LRP and Market Prices:
A Multi-Country Analysis
Teevrat Garg
Christopher B. Barrett
Miguel I. Gómez
Erin C. Lentz
William Violette
Cornell University
FAO ISN-Symposium
January, 2012
Motivation
Why Study Price Effects?
Motivation for Framework
 Local procurement is a demand stimulus that could put
upward pressures on local prices and price volatility.
 Local distribution is a supply stimulus that could place
downward pressures on local prices and fuel price volatility.
 USDA requires LRP to meet the “do no harm” condition, that
is, LRP should not substantially drive up retail prices.
 Simple monitoring of prices cannot control for confounding
factors, including WFP procurements, climate fluctuations,
inflation, seasonal variation, changing transport costs, etc.
Motivation
Procurement
Price
P*
Motivation
Exogenous Demand Shiftfor Framework
from Procurement
S
Prices Rise
D
Q*
D’
Quantity
Motivation
Distribution
Motivation for Framework
Price
P*
S
S’
Exogenous Supply Shift
from Distribution
Prices fall
D
Q*
Quantity
Motivation
Scope of the Study
Motivation for Framework
 Retail prices only (wholesale for Kenya).
Table 1: Types of LRP Projects By Country and Commodity
Country
Procurement
Distribution
Burkina Faso
Millet
Millet, Cowpeas
Guatemala
Beans, Incaparina,
White Maize
Kenya
Beans, Maize
Beans, Maize
Kyrgyzstan
Niger
Wheat (Cash)
Maize, Millet
Maize, Cowpeas
Maize Flour, Maize
Grain, Dried Beans,
Sorghum
Uganda
Zambia
Voucher
Maize Meal, Beans
Maize Meal, Beans
Identification Strategy
Identification Strategy
Price Level Impacts:
Price Volatility Impacts:
X = Full Set of Controls (WFP included)
c: commodity
s: price type (transmission channel)
i: region
t: time period
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Key Results:
Procurement(Price Levels)
Country
Burkina Faso
Maize
Beans
-3.473
(6.097)
-4.261
(3.982)
-3.389
(6.948)
0.536
(1.245)
5.592
(4.430)
-0.178
(1.277)
11.68***
(3.005)
10.99*
(6.451)
11.84***
(3.484)
2.892
(3.113)
-1.236
(7.112)
4.088
(3.577)
In Procurement
Markets
In Non-Procurement
Markets
Guatemala
In Procurement
Markets
In Non-Procurement
Markets
Kenya
In Procurement
Markets
In Non-Procurement
Markets
Niger
In Procurement
Markets
In Non-Procurement
Markets
Zambia
In Procurement
Markets
In Non-Procurement
Markets
2.123
(1.625)
5.958
(14.90)
2.091
(1.622)
-3.860
(6.484)
-3.187
(12.22)
-3.905
(7.607)
Millet
1.386
(3.814)
0.760
(7.088)
1.525
(4.620)
-1.285
(1.355)
-0.883
(2.969)
-2.284
(1.543)
-1.078
(2.859)
10.03
(7.003)
-1.259
(2.926)
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Key Results:
Procurement(Price Volatility)
Country
Maize
Beans
Burkina Faso
-1.185
(2.670)
-1.990
(4.452)
-0.626
(3.337)
In Procurement
Markets
In Non-Procurement
Markets
Guatemala
In Procurement
Markets
In Non-Procurement
Markets
Kenya
In Procurement
Markets
In Non-Procurement
Markets
Niger
In Procurement
Markets
In Non-Procurement
Markets
Zambia
In Procurement
Markets
In Non-Procurement
Markets
Millet
3.318
(5.584)
2.989
(2.497)
3.190
(6.369)
-1.077
(0.806)
-1.803
(2.888)
-0.745
(0.822)
-0.670
(1.904)
-2.440
(3.003)
-0.574
(2.243)
-0.690
(2.028)
0.346
(4.107)
0.204
(2.369)
0.505
(1.862)
-3.683
(11.07)
1.066
(3.235)
-6.139
(4.138)
-6.699
(6.533)
-6.711
(4.761)
-1.161
(0.872)
-1.428
(1.656)
-0.927
(0.978)
0.533
(1.938)
-4.115
(3.930)
0.495
(1.982)
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Key Results:
Distribution(Price Levels)
Country
Burkina Faso (Millet, not Maize)
In Distribution
Markets
In Non-Distribution
Markets
Niger
In Distribution
Markets
In Non-Distribution
Markets
Zambia
In Distribution
Markets
In Non-Distribution
Markets
Millet/Maize Dried Beans
Cowpeas
-3.055
(4.553)
-5.429
(11.80)
-2.298
(5.033)
10.32
(11.03)
-
1.755
(1.707)
-
-14.97*
(8.904)
-
1.736
(1.738)
-10.21
(8.172)
-9.734
(6.628)
-
11.31
(9.486)
3.841
(4.162)
-6.875
(28.69)
4.261
(4.216)
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Key Results:
Distribution(Price Volatility)
Country
Burkina Faso (Millet, not Maize)
In Distribution
Markets
In Non-Distribution
Markets
Niger
In Distribution
Markets
In Non-Distribution
Markets
Zambia
In Distribution
Markets
In Non-Distribution
Markets
Millet/Maize Dried Beans
Cowpeas
9.800***
(3.299)
11.34
(7.187)
8.775**
(3.848)
0.932
(7.184)
3.854***
(1.204)
-
36.06**
(15.24)
3.859***
(1.228)
22.73
(16.66)
-4.020
(4.102)
-
1.849
(5.657)
2.470
(2.817)
-4.865
(14.53)
2.309
(2.860)
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Key Results: Cash and
Vouchers(Price Levels)
Country
Maize Grain
Sorghum
Kyrgyzstan
Wheat
6.528***
(1.908)
In Procurement
-
Markets
In Non-Procurement
6.004***
Markets
Uganda
(2.095)
-3.666
-2.941
(11.38)
(12.96)
-
-
In Non-Procurement
-2.238
-5.987
Markets
(14.10)
(16.35)
In Procurement
Markets
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Key Results: Cash and
Vouchers(Price Volatility)
Country
Maize Grain
Sorghum
Kyrgyzstan
Wheat
0.622
(1.204)
In Procurement
-
Markets
In Non-Procurement
0.716
Markets
(1.314)
Uganda
-3.434
-5.310
(7.518)
(7.792)
-
-
In Non-Procurement
-3.474
-3.055
Markets
(8.562)
(10.89)
In Procurement
Markets
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Conclusion
Limitations
 Not strictly causal estimates due to potential for omitted
relevant variables (e.g., government policies).
 Unable to control for GE effects (typical for this literature)
 Potential endogeneity of prices and LRP (timing and quantity).
Good News: Practitioners control this mechanism!
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Conclusion
Policy Implications
• For most commodities and countries, there is no economically
or statistically significant correlation of LRP and prices.
• In a very small number of instances, procurement is correlated
with upward price pressures, consistent with economic theory.
• The possibility of significant induced price effects underscores
the importance of market monitoring.
• The relative infrequency of such effects suggests that LRP can
be undertaken effectively when well designed and monitored.
• Distribution may be more of a concern when it comes to price
impacts.
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Contact Information
We Welcome Your Comments
Teevrat Garg
Charles H. Dyson School of
Applied Economics and Management
Cornell University
tg236@cornell.edu
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