Evidence from Zambia. Yujun Zhou. December 2nd, Department of Agricultural Consumer Economics University of Illinois at Urbana-Champaign

Transcription

1 Effect of Evidence from Zambia Department of Agricultural Consumer Economics University of Illinois at Urbana-Champaign December 2nd, 2016

2 Outline

3 What are the effective policy tools to prevent volatile food prices in development countries? How can countries prevent economic instability and civil unrest by stabilizing domestic food prices (Bellemare 2015[2]; Fjelde 2014[5])? How effective is the restriction on maize export at stabilizing local maize price? Can export bans isolate the domestic market from external price shocks from the RSA?

4 In theory, export bans can decrease price volatility generated by domestic or international production shocks. The ban prevents shocks from external markets by lowering the export parity price. It also prevents the price soothing effect generated through buffer stocks to leak to the external market. (Porteous 2012[9] ; Gouel and Jean 2015[6]) If stabilizing policies are pursued in an unpredictable manner, the uncertainties in the policies may intensify rather than mitigate price volatility (Loy and Wichern (2000)[7]; Chapoto and Jayne 2009[3]; Apergis and Rezitis 2011[1]) Introduce the Drought Index into the analysis to separate the effect of the export ban: frequent policy changes correlated with weather shocks

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6 Zambia (Lusaka district) monthly maize prices from the WFP and CSO Zambia, Jan Feb South Africa Futures Exchange (SAFEX) monthly maize cash price from the Johannesburg Stock Exchange, Jan Feb Monthly Drought Index in Zambia and South Africa (expressed in the form of soil moisture percentile): lower the index, the more severe the drought in the area. Calculated as an average of all the cropland area in both countries. The soil moisture grid data comes from the African Drought Monitor website. Cropland area data are collected from the Center for Sustainability and the Global Environment (SAGE) data set

7 VAR-GARCH model with exogenous variables Conditional Mean : Vector Autoregressive (VAR) Conditional Variance :BEKK-GARCH. The influence of exogenous variables can be allowed for through matrix C (Moschini and Myers, 2002[8]), where c ij = i t δ ijt, and i t = (1, Z 1, Z 2 ).Z 1 represents the drought index and and Z 2 represents the export ban dummy.

8 Main Findings After controlling for the effect of domestic weather shocks, the export bans actually have a price stabilizing effect on the local price volatility. The restriction on export itself is price stabilizing. This disagrees with the conclusion found by Chapoto and Jayne (2009)[3], Rapsomanikis and Mugera (2011)[10] stating that the export ban itself is increase the variability of prices. Drought increases the maize price volatility in Zambia. h 11t is mainly influenced the drought in Zambia and past volatility in its own market, which is consistent with finding by (Dorosh, Dradri, and Haggblade 2009[4]). There is little volatility spillover between South Africa and Zambia. Past volatility (h 22,t 1 ) and past price shocks (r2,t 1 2 ) in South Africa does not have a significant influence on the current Zambia price volatility. in South Africa are mainly affected by its own volatility and price shocks in the past.

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15 I N. Apergis and A. Rezitis. Food price volatility and macroeconomic factors: Evidence from garch and garch-x estimates. Journal of Agricultural and Applied Economics, 43(01):95 110, M. F. Bellemare. Rising food prices, food price volatility, and social unrest. American Journal of Agricultural Economics, 97(1):1 21, A. Chapoto, T. S. Jayne, et al. The impacts of trade barriers and market interventions on maize price predictability: Evidence from eastern and southern africa. Technical report, Michigan State University, Department of Agricultural, Food, and Resource Economics, P. A. Dorosh, S. Dradri, and S. Haggblade. Regional trade, government policy and food security: Recent evidence from zambia. Food Policy, 34(4): , 2009.

16 II H. Fjelde. Farming or fighting? agricultural price shocks and civil war in africa. World Development, 67: , C. Gouel and S. Jean. Optimal food price stabilization in a small open developing country. The World Bank Economic Review, 29(1):72 101, J.-P. Loy, R. Wichern, et al. Integration of zambian maize markets. Quarterly Journal of International Agriculture, 39(2): , G. Moschini and R. J. Myers. Testing for constant hedge ratios in commodity markets: a multivariate garch approach. Journal of Finance, 9(5): , 2002.

17 III O. C. Porteous. effects of short-term export bans: The case of african maize. Technical report, Working Paper Berkeley, Department of Agricultural Economics, University of California, G. Rapsomanikis and H. Mugera. Price transmission and volatility spillovers in food markets of developing countries. In Methods to Analyse Agricultural Commodity Price, pages Springer, 2011.