LRP Market Monitoring Training

LOCAL AND REGIONAL PROCUREMENT

4. Introduction to Prices

PricesPrice is the cost or value of a good or service

expressed in monetary terms. Price indicates the value that has been given

to a particular commodity. Price signals carry information about the cost

of production, transportation, storage, quality, perceptions and desires and, in some cases, government policies or distortions.

Commodities have different prices at different market levels:Farmgate priceWholesale priceRetail price

Prices along the Commodity ChainFarmgate: prices paid to producers by brokers, aggregators, wholesalers and other market agents.

Wholesale: intermediary prices paid during transactions among brokers, aggregators and wholesalers. We are concerned with the prices that retailers pay to wholesalers.

Retail: prices paid by households or individual consumers.

Prices within Commodity Chain LevelsAlong a commodity supply chain, each

trader buys and sells at different prices

Buying price – the price paid by a buyer of goods or services, e.g. the price the wholesalers pays the farmer.

Selling price – the price the seller receives from a buyer of good or services, e.g. the price the wholesaler receives from the retailer.

In most cases, the selling price will be greater than the buying price to reflect the value added at that level of the market chain.

Determinants of pricesPrices are a function of the supply and demand

for a commodity in a market.

Market supply – the amount of commodity being offered in the market.Can come from local production, private or public

stocks, regional and international trade and food aid.

Market demand – the amount of a particular good or service that a consumer or group of consumers will want to purchase at a given price.Only people who can pay for their food have

effective demand.

Supply and Demand

How Supply and Demand Affect Prices

Supply Prices

?Demand

Prices ?

Factors Affecting Supply and Demand

Source: Timmer (2008) “Causes of High Food Prices.” Asian Development Outlook 2008 Update. P. 78

Global commodity prices driven by poor harvests, demand and speculation

THE USDA's shockingly low yield projection for the US 2010 maize crop has re-ignited price momentum, propelling prices to new 26-month highs. World maize demand is seen 25m tonnes up this season as the US and China consume more in ethanol and feeds, while other users try to find alternatives for shortfall in Russian wheat supplies.

Seasonality (Temporal Integration): Maize Calendar in Mozambique

Seasonality: FEWs Average Maize Prices in Mozambique

Trade flows (Spatial integration): Maize production and flows in Mozambique

Policy Impacts on PricesChanging price

SubsidiesPrice ceilings, floorsTaxes and tariffs

Shifting supply and demandRestrictions on importsRestrictions on exportsNon-tariff barriersPublic stockholding and salesIncome transfers, food aid deliveries, LRP

Exchange rates

InflationInflation is an overall rise in the prices of

good sand services in an economy, due to the decrease of the value of money.

Nominal prices – the actual prices that you observe in the market.

Real prices – prices that have been adjusted for inflation.

Other Determinants of PriceType of productProduct qualityAmount of productPackagingTime of salePlace of saleProcessingMarketing/contracts

FEWs: Policy impacts (Lesson 3, p. 24)

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FEWs: Policy impacts (Lesson 3, p. 24)

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ReferencesBarrett, C. and E. Lentz (2010). Draft AEM

6940 MIFIRA Lecture Notes: Lecture 4.FEWs Net (2008) “Market Assessment and

Analysis: Learners Notes.” FAO. Lentz, E (2010). Technical Guidance on

Collecting Price Data : Sheet 1.