pat terms of trade session 3.1. wfp markets learning programme3.1. 1 price analysis training
TRANSCRIPT
PATTerms of Trade
Session 3.1.
WFP Markets Learning Programme 3.1. 1Price Analysis Training
Learning objectives
After this session, participants should be able to:
Explain the terms of trade (ToT) concept – definitions, and pros and cons of its usage
Explain the implications of trends in ToT for HH FS & for WFP decision-making
Analyze a ToT graph & identify the implications for FS analysis of the changes in ToT
Calculate the appropriate ToT for particular food groups in the country
WFP Markets Learning Programme 3.1 2Price Analysis Training
Use:
Determine potential deterioration of HH food purchasing power
At macro-level, expressed as ratio of nation’s export prices to its import prices: measures country’s trading position
At micro (HH)-level, ToT measures HH purchasing power as ratio of prices of two different goods
ToTij = (Price of good i) / (Price of good j)
WFP Markets Learning Programme 3.1 3Price Analysis Training
Terms of Trade
Data required:
Time series of ratio of income sources (livestock/food staple, cash crop/food staple, daily wage/food staple by livelihood type)
Generally: the income producing item is in the numerator and the consumption item (the item on which the livelihood group spends its income) is in the denominator
WFP Markets Learning Programme 3.1 4Price Analysis Training
Terms of Trade
Interpretation
A decreasing (or increasing) ToT indicates potential reduction (or improvement) of HH purchasing power (a decreasing ratio implies income is declining and consumption costs are rising)
Indicates access component of food security
Contributes to identification of appropriate crisis-response strategies
WFP Markets Learning Programme 3.1 5Price Analysis Training
Terms of Trade
ToT Example #1
WFP Markets Learning Programme Price Analysis Training 3.1.6
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2003 to 2007 ( month)
El Geneina, Sudan: Price of two-year female goat / Price of sorghum per ton
Rising trend: ToT turning in favour of item in numerator
Rising trend: ToT turning against item in numerator
ToT Example #2
WFP Markets Learning Programme Price Analysis Training 3.1.7
Kassala, Sudan: Casual Labour wage rate / Price of sorghum
ToT Example #3
WFP Markets Learning Programme Price Analysis Training 3.1.8
Nicaragua: Maize / Coffee
Pros
Simplicity
Quick analysis of possible patterns of HH purchasing power
Ratio of prices means don’t need to worry about nominal vs. real prices
ToT Pros & Cons
WFP Markets Learning Programme 3.1 9Price Analysis Training
ConsUnderlying causes required to
explain ToT patterns
Price data at geographical location of livelihood group may not be available
Impact on HH is implicit but not measured
May be misleading as other coping mechanisms may be in force (transfers/remittances, food stocks, wild products…)
Terms of Trade & Livelihoods
With a livelihoods approach, market analysts can differentiate the likely market price impacts on different producers and consumers
WFP Markets Learning Programme Price Analysis Training 3.1.10
Example: The same drought that causes meat prices to fall (as herders rush to market to sell off livestock before they die) can cause the price of increasingly scarce maize to skyrocket (thereby benefitting those still able to produce maize
Please turn to Workbook Exercise 3.1.
The Marketastan File: Terms of Trade in Marketastan (use Excel data file: 3.1. Marketastan ToT Exercise.xls)
WFP Markets Learning Programme Price Analysis Training 1.4.11
Small Group Work
Marketastan 3.1. Debriefing
Do you agree with the Provincial Commissioner’s statements?
Is he correct that ToT have in recent months shifted severely against wheat producers in favor of pastoralists?
Do you agree these are the worst ToT for northern wheat producers (vis à vis northern pastoralists) in more than a decade?
WFP Markets Learning Programme Price Analysis Training 3.1.12
Wrap-up: Terms of Trade - Interpretation & Decision-Making
Interpretation
Indicative of HH food access: purchasing power
Indicative of employment of coping strategies
Complementary information needs:
• HH dependency on markets for food
• HH capabilities to access food through markets
• Labour market functioning (unemployment rates and wage rates by season, sector, gender and regions, range of labour market regulations…)
Decision-making
Early warning or trigger for deeper assessment
Can contribute to decisions regarding cash or food aid
Can help to inform livelihood specific government policies and corporate policies of global actors on food security strategies
WFP Markets Learning Programme 3.1 13Price Analysis Training