Transmission of rice prices from Thailand into West African markets

The case of Benin, Mali and Senegal

Ibrahima Bamba1, Rose E. Fiamohe2*, Didier Y. Alia3, Aliou Diagne2

and Eyram Amovin-Assagba 2

1 International Fund for Agricultural Development (IFAD), Via Paolo di Dono, 44, 00142 Rome, Italy.2 Africa Rice Center (AfricaRice), 01 BP 2031 Cotonou, Benin.3 University of Kentucky, Department of Agricultural Economics, 400 Charles E. Barnhart Building, Lexington, KY 40546-0276, USA

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

20,000,000 Production (tonnes)Consumption (tonnes)

consumptionGrowth rate 2000-2007: 4%Growth rate 2007-2011: 7%

Background● Share of imported rice in total consumption in West Africa

Production (64%)Growth rate 2000-2007: 4%Growth rate 2007-2011: 10%

Imports (36%)Growth rate 2000-2007: 6%Growth rate 2007-2011: 3%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

2000000 SenegalMaliBenin

● Rice imports of Benin, Mali and Senegal from International Market

Background

Sources of rice imports of the selected countries in 2008 : Benin : Thailand (>25%) , Brazil, China, France, … Mali : Thailand (>25%), China, India, Pakistan… Senegal : Thailand (>25%), Myanmar, India,

Vietnam, …

Background● Detailed rice trade flows for Benin, Mali and Senegal

Thailand

Benin

MaliSenegal

Before and after 2008 food crisis, many results from literature provided evidence that international rice price changes were transmitted more frequently, stronger and faster to domestic markets in West African countries,

The reverse is not true because the region is price taker especially for rice.

Background● Rational

Responses of domestic market prices in importing countries to changes in the prices in exporting countries are suspected to be of asymmetric nature:

High level of government in both developing and high-income countries interventions in rice markets regulating to stabilize domestic supply and prices due to the inherent instability of the international rice market,

And the structure of both the international (thin and concentrated) and domestic (not homogeneous, and few number of large firms dominate import and wholesale functions) rice markets,

Objectives

Estimation of: Linear and threshold short and long run relationship between

Thailand and 3 West African countries rice markets, The value of threshold (transaction costs) that resulted from

exchanges between selected pairs of markets.

● To shed further lights on the functioning of West African and world rice markets by empirically examining whether there is asymmetric adjustment in the transmission of price (PT) shocks between each pair of markets over the period of 2000-2011,

Step of estimation (1) Testing for the presence of unit root in each price variable in order to examine the properties of the different time series: ADF and PP tests,

(2) Testing of the existence of linear cointegrating relationship between Thailand price and domestic price : Engle-Granger (1987) and Johansen and Juselius (1990) methods,

If evidence of linear cointegration is found (3) Testing of the threshold effects and estimating of the cointegrating vector and the value of the cointegration threshold (Transaction costs).

(4) Estimation of the parameters of short and long run dynamic adjustments of domestic to world market prices for all cointegrated markets (linear and threshold)

The threshold cointegration approach capturing the transaction costs introduced by Hansen and Seo (2002) was used to investigate the dynamic linkages between the selected pairs of rice markets.

Methodology● Estimation framework

Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Benin Mali Senegalthai100Br thai25Br thaiA1Sup

Rice price trends (USD/kg)

● Typical price series in the selected rice markets

Methodology

SourcesThailand: OSIRIZ and CIRADBenin: Office National d’Appui à la sécurité alimentaire (ONASA)Mali: Observatoire des Marchés Agricoles (OMA) Senegal: Commisariat à la Sécurité Alimentaire (CSA)

markets pairings

Engle-Granger test Johansen test

Test Stat Critical value Ho Trace stat Critical Value

Benin-Thai100Lag=3 -3.396** 0.000 r= 0 24.837 25.872

r= 1 6.222 12.517Benin-Thai25Lag=2 -3.243** 0.001 r= 0 25.498 25.872

r= 1 6.101 12.518Benin Thai A1superLag=3 -3.031** 0.002 r= 0 26.286* 25.872

r= 1 5.539 12.518Mali-Thai100Lag=2 -3.561** 0.000 r= 0 21.543* 15.495

r= 1 1.215 3.841Mali-Thai25Lag=2 -3.179** 0.001 r= 0 12.983 15.495

r= 1 0.309 3.841Mali-A1superLag=3 -2.608** 0.009 r= 0 13.993 15.495

r= 1 1.457 3.841Senegal-Thai100Lag=3 -4.061** 0.000 r= 0 21.000* 15.495

r= 1 0.664 3.841Senegal-Thai25Lag=2 -4.041** 0.000 r= 0 23.715* 15.495

r= 1 0.435 3.841Senegal-A1super Lag=4 -3.831** 0.000 r= 0 32.499* 15.495

r= 1 0.836 3.841The notations*and** correspond to10%and 5% significance levels.

Key results● Linear long run dynamics adjustment of price response

3.1. Test of linear versus threshold cointegration of Hansen and Seo (2002)

Price (bivariate)

Test de Hansen and Seo (2002)Type of

cointegration

β estimate β=1

T. stat P-Value T. stat P-ValueBenin ThaiA1 Super 24.034 0.048** 23.669 0.058* Threshold Mali Thai 100 23.436 0.051* 28.851 0.003*** Threshold Senegal Thai 100 18.767 0.448 31.611 0.005*** Linear Senegal Thai 25 15.212 0.296 17.469 0.161 Linear Senegal Thai A1 Super 14.806 0.333 13.206 0.532 Linear The notations*, ** and***correspond to10%, 5% and 1%significance levels.

Key results

Domestic market Thailand market EstimatedCointegrating Vector

EstimatedThreshold

Benin Thai A1 Super 1. 224 -0.178Mali Thai 100 1. 123 -0.096Senegal Thai 100 0.794 No thresholdSenegal Thai 25 0.808 No thresholdSenegal Thai A1 Super 0.823 No threshold

3.2. Estimated cointegrating vectors and thresholds (transaction costs)

Market Pairings

Linear price responses for Senegal to change in

Thailand prices

Asymmetric price responses for Benin and Mali to change in

Thailand prices wt−1

wt−1<= -0.178

wt−1> -0.178

wt−1<= -0.096

wt−1>-0.096

Senegal-Thai 25 -0.144***(0.036)

Senegal-Thai 100 -0.129***(0.035)

Senegal-Thai A1 Super -0.157***(0.036)

Benin - Thai A1 -0.030 -0.026(0.637) (0.152)

Mali -Thai 100 0.064 0.015(0.409) (0.771)

Nob. of observation 144 8.5% 91.5% 20.6% 79.4%

● Short run dynamics of price response

Key results

● Conclusions Changes in prices in Thailand select rice grade markets are differently transmitted to

the West African countries, Linear co-movements between the prices of the three grades Thai rice and

domestic price in Senegal, Asymmetry co-movement between prices of Thai A1 Super and domestic

prices in Benin and that of Thai 100 and domestic prices in Mali, Presence of high transaction costs.

Conclusions and implications

● Implications Benin and Mali

Price increases in Thai A1 Super and Thai 100 markets are quickly transmitted to domestic price than price decrease respectively,

Short run dynamic inefficiencies due to the presence of high transaction costs. Senegal

Price adjustment is linear, More deep integration to selected Thailand rice markets.

Merci!

Thank you!

Center of Excellence for Rice Research