publication
Maize Price Volatility: Does Market Remoteness Matter?



FINDINGS:

  • Markets located far from major urban centers have the highest levels of price volatility
  • Maize-surplus markets and markets bordering Côte d’Ivoire, Ghana, and Togo have experienced more volatile prices than maize-deficit and non-bordering markets
  • Burkinabe maize markets experience seasonal price volatility
  • Exchange rates and international maize prices do not seem to influence maize price volatility 

POLICY MESSAGES:

Maize price volatility is greatest in remote markets. Poor road quality and low storage capacity limit those markets’ capacity to draw supplies from urban markets. Enhanced road infrastructure would strengthen links between rural and urban markets, thereby stabilizing prices.


SUMMARY

Burkina Faso is landlocked and dependent on agriculture. Its limited transportation infrastructure makes transport costs high and hinders market participation, especially for rural farmers. Furthermore, urban traders are discouraged from purchasing food items directly from rural farmers. Supply and demand forces may also increase price volatility. However, few studies have explored this possibility.

This study examines the effect of market remoteness on maize price volatility in Burkina Faso. Maize is widely consumed throughout the country and is the largest source of income for farmers, after cotton. Because price volatility may hinder investment in agricultural production, understanding its cause is important for food security and rural development. 

The Analysis

The study develops a price formation model that relates price volatility to transport costs and assesses its ability to explain differences in spatial volatility. It explores monthly maize prices across 28 markets over 2004–13. The model assumes that market remoteness implies higher transport costs, which fuel price volatility.

  • An autoregressive conditional heteroskedasticity (ARCH) model is used to investigate the determinants of spatial price volatility.
  • Spatial price volatility across markets is explored by analyzing time distance to major cities and maize border-crossing points and by looking at whether the market is in deficit or surplus production area.
  • The robustness of results is tested by using alternative measures of market remoteness, by conducting the same analysis with a nominal price series, and by generalizing the ARCH model. 

Results

Markets close to major cities, where roads are better, display less volatile price series. Also markets located in maize-surplus regions and those close to maize border-crossing points have more volatile prices than maize-deficit and non-bordering markets.

 


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Spatial Volatility of Maize in Burkina Faso over 2004–13


Policy and Research Implications

The study shows that physical constraints, such as proximity to major consumption centers or main roads, are fundamental factors influencing maize price volatility. Developing infrastructure and improving regional integration and economic development in West Africa would reduce that volatility. For instance, authorities could support remote markets by building better roads that link such markets to major consumption centers in Burkina Faso and neighboring countries. Infrastructure and integration are important for commercializing agricultural products in remote areas and reducing price volatility in Burkina Faso.


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