The Impacts of Trade Barriers and Market Interventions on Maize Price Predictability: Evidence from Eastern and Southern Africa

Abstract

There is continuing debate in east and southern Africa about the effects of food market reform on the welfare of small-scale farmers and low-income consumers. At the center of this debate is the perception that food prices have become more unstable in countries that have liberalized their staple food markets, thereby exacerbating the plight of poor consumers and farmers. This perception has led many governments in the region to shun an open maize borders policy and pursue a variety of food marketing and trade policy tools to stabilize food prices. Unfortunately, there remains a dearth of empirical evidence on the effects of alternative food marketing and trade policies, including that of liberalization, on price stability and predictability. Assessments of this issue are complicated by the fact that market reform programs are not monolithic in their design or implementation – impacts of reform on price instability may depend on variations in implementation. It would be particularly important to compare the magnitude of food price instability in countries that have embraced relatively comprehensive staple food market reform policies over time versus those in which the state continues to influence and stabilize food prices through the operations of marketing boards and controls on trade. This study examines the amplitude of price instability and unpredictability between countries using trade barriers and marketing board operations to stabilize prices versus countries with relatively open trade policies. Instability is defined as the unconditional variance in food prices over time, whereas unpredictability is defined as the unanticipated component of price instability, i.e., the conditional variance from a price forecast model.

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