TST

How Markets Work

Session 1.4

WFP Markets Learning Programme 1.4. 1Trader Survey Training V2

Learning Objectives

After this session, participants should be able to:

Identify and explain the key elements of market functioning, including market structure, conduct and performance

Explain the relevance of structure, conduct and performance in anticipating market response to shocks

WFP Markets Learning Programme 1.4. 2Trader Survey Training V2

Supply: understanding food production and trading patterns (especially for most important staple foods)

Demand: factors that affect household demand (e.g. changes in incomes, purchasing power, preferences)

Prices: levels, trends, seasonality

Markets: environment & functioning (structure-conduct-performance of “SCP”) - factors influencing trader decisions and behaviour

Key elements of market analysis

WFP Markets Learning Programme 1.4. 3Trader Survey Training V2

Why focus on “SCP”?

More comprehensive, forward looking SCP analysis can:Help analysts anticipate market response, define relevant scenarios, formulate expectations about the season to tell more complete food security storyprovide decision makers with info needed to make better responseshelp orient timing of humanitarian interventions, complementing & compensating for markets rather than replacing them

WFP Markets Learning Programme Price Analysis Training 1.4.4

e.g., Traders plan to import cereals using prices from regional & from international markets.

They have strategies for dealing with production shortfalls in their market areas.

Learning about trader behaviors helps identify market indicators to follow, analyze implications of market phenomena, project likely supply responses, and ultimate market outcomes.

Market environment:

external factors affecting market conditions (trade policies…)

Key elements for market analysis

Understanding Market Functioning

WFP Markets Learning Programme 1.4. 5Trader Survey Training V2

Market Environment

Economic and Public policies and regulations• Price ceilings• Trade policies: Import/export regulations• Quality control and food safety measures• Net Importers vs. Net Exporters (national level)

• Example: Food price crisis and national policy reactions: subsidies, export bans etc.

Environmental • Agro-ecological conditions and seasonal calendars• Surplus/deficit areas

WFP Markets Learning Programme 1.4. 6Trader Survey Training V2

WFP Markets Learning Programme Price Analysis Training 1.4.7

1.What are the main thrusts of the GoE’s food security policy?

2.What are the main challenges confronting the GoE in liberalising its food security policies?

Quick Case: Exercise 1.4.a. Markets & FS Policy in Egypt

Task: Read the Quick Case in your workbook and, with a partner, answer the questions.

How do trade policies impact markets in this

country?

WFP Markets Learning Programme 1.4. 8Trader Survey Training V2

Market Structure

Refers to relatively stable features of market that influence rivalry of buyers and sellers:

Number of buyers & sellers

Barriers to entry (e.g. license fees and taxes, farmer and trader access to credit, kinship ties)

Nature of trading relations: vertical coordination mechanisms, or the ways in which transactions are conducted between market participants (e.g, spot market transactions, contracts, cooperatives, or strategic alliances among farmers, traders, transporters, processors and consumers)

WFP Markets Learning Programme 1.4. 9Trader Survey Training V2

Structure: Surplus/Deficit Areas - Example

-40000

-35000

-30000

-25000

-20000

-15000

-10000

-5000

0

5000

10000

2003 2004 2005 2006

District level cereal balances in Timor Leste (2003-2006)

WFP Markets Learning Programme 1.4. 10Trader Survey Training V2

Structure: Commodity Flows Wheat & wheat flour flows in Caucasus Region

WFP Markets Learning Programme 1.4. 11Trader Survey Training V2

Structure: Vertical Coordination/IntegrationMarketing Chain

WFP Markets Learning Programme 1.4. 12Trader Survey Training V2

Structure: Marketing Chain Channels

WFP Markets Learning Programme 1.4. 13Trader Survey Training V2

How do marketing chains function in this country?

How might a major shock disrupt these chains?

WFP Markets Learning Programme 1.4. 14Trader Survey Training V2

Market Structure

Market Conduct

The patterns of behaviour that traders follow to affect or adjust to changing market conditions:

Price-setting behaviour

• Level of competition

Buying and selling practices

• Weights and measures

• Grades and standards

WFP Markets Learning Programme 1.4. 15Trader Survey Training V2

WFP Markets Learning Programme 1.4. 16Price Analysis Training

Cas

hew

Nut

Pric

es (

FC

FA

)

Collection (5), local transport (20) & wholesaler fees (5) , wholesaler margin

(25), transport to Bissau (10)

170- <-Wholesale Price

Tax (14) Exporter Fees (5) & Port Fees (10), Export Tax (47)

246- <-FAS Guinea Bissau

Margin – International Trade (92)

338- <-FOB Guinea BissauTransport Insurance (53)

391- <-CIF Cochin, India

Producer costs and profit (105)

105- <-Producer Price in Guinea Bissau

Conduct: Market Actor’s Margin Breakdown: from Rural Guinea Bissau to India

To what extent is there competition in markets in this country?

Or is the market controlled by a few interests?WFP Markets Learning Programme 1.4. 17Trader Survey Training V2

Market Conduct

Market Performance

Extent to which markets produce outcomes deemed good or preferred by society: regular, predictable availability of basic foods at affordable prices

Price levels and stability over time and space (market integration)

Margins and costs

Volumes

Profits: excessive or not

Product quality

Food distribution within market

WFP Markets Learning Programme 1.4. 18Trader Survey Training V2

What is Market Integration?

The existence of trade flows: the movement of food in response to supply/demand imbalances

Market integration allows price signals to be transmitted from one market to another

Impact on HH Food Security of market integration?

• When markets are integrated, prices become more stable: then HH FS is likely to be improved, as poor HHs can obtain food at more affordable prices

WFP Markets Learning Programme 4.2. 19Price Analysis Training

Market Performance: Example

50

10

015

020

025

0M

on

thly

Defla

ted M

illet P

rice

(C

FA

/Kg)

1996m1 1998m7 2001m1 2003m7 2006m1Month and Year

Agadez Diffa

Dosso MaradiNiamey TahouaTillaberi Zinder

Real millet prices in regions of Niger and Nigeria, 1995 to 2006

WFP Markets Learning Programme 1.4. 20Trader Survey Training V2

How do markets perform in this country?

Are prices & supply relatively steady, predictable? Or are extreme fluctuations the norm?

WFP Markets Learning Programme 1.4. 21Trader Survey Training V2

Market Performance

Market Functioning Logical conclusion from structure, conduct

and performance of markets

Is food moving from where it is produced to where it is needed?

WFP Markets Learning Programme 1.4. 22Trader Survey Training V2

Application and Interpretation of S-C-P and Market Functioning

Helps anticipate market response to shocks

Can formulate expectations about the season

Implications for cash & voucher programming: helps identify risks related to corruption, inflation & trader response capacities

WFP Markets Learning Programme 1.4. 23Trader Survey Training V2

Exercise 1.4.b.

Market Environment in Malawi

WFP Markets Learning Programme Trader Survey Training V2 1.4.24