AAMP Training MaterialsModule 4.3: Marketing Margins & Marketing Costs

T.S. Jayne (MSU)jayne@msu.edu

Objectives

• Understand relationships between food prices between countries

• Examine the relationships between food prices at different marketing levels

Maize price vs. import parity, Lilongwe, Malawi

0

100

200

300

400

500

600

2000 2002 2004 2006 2008

Lilongwe retail

cif Lilongwe fromSouth Africa

US

D p

er m

etri

c to

n

Maize prices vs. import parity, Blantyre Malawi

0

100

200

300

400

500

600

2000 2002 2004 2006 2008

Blantyre retail

cif Blantyre fromSouth Africa

US

D p

er m

etri

c to

n

Maize prices vs. import parity, Nairobi, Kenya

150

200

250

300

350

400

450

500

2006 2007 2008 2009

US

D p

er m

etri

c to

n

Nairobi wholesale

import parity fromSouth Africa

Wholesale maize grain and maize meal prices, Zambia

0

400

800

1200

1600

2000

2400

2800

3200

3600

1996 1998 2000 2002 2004 2006 2008

Breakfast meal, LusakaBreakfast meal, Ndola

wholesale maize grain, Lusakawholesale maize grain, Choma

nom

inal

kw

acha

per

kg

Motivation

• Why bother studying the relationship between food prices in one market and another?

• Why bother studying the relationship between food prices at one level (e.g., farm-gate) and food prices at another level (e.g., retail)?

Definitons

• Spatial marketing margins• Spatial marketing costs• Vertical marketing margins• Vertical marketing costs

Luchenza retail price and farmer-reported prices received in remote villages in Mulanje District,

2009/10 marketing year

0

10

20

30

40

50

60

70

80

90

2009:03 2009:05 2009:07 2009:09

Luchenza retail

MK

per

kg

Wholesale maize grain and breakfast meal prices, Zambia (nominal prices)

0

400

800

1200

1600

2000

2400

2800

3200

3600

1996 1998 2000 2002 2004 2006 2008

Breakfast meal, LusakaBreakfast meal, Ndola

wholesale maize grain, Lusakawholesale maize grain, Choma

nom

inal

kw

acha

per

kg

Wholesale maize grain and breakfast meal prices, Zambia (real prices)

0

1000

2000

3000

4000

5000

6000

7000

1996 1998 2000 2002 2004 2006 2008

Breakfast meal, LusakaBreakfast meal, Ndola

wholesale grain, Lusakawholesale grain, Choma

kwac

ha p

er k

g (c

onst

ant

2007

=10

0)

Determinants of marketing margins

• Spatial margins:– 1– 2– 3

• Vertical margins– 1– 2– 3

Why might margins ≠ costs

• Spatial margins:– 1– 2– 3

• Vertical margins– 1– 2– 3

What does it mean if:

• Spatial margins < transfer costs– 1– 2– 3

• Spatial margins > transfer costs– 1– 2– 3

Maize prices vs. import parity, Nairobi Kenya

100

200

300

400

500

600

700

2006:01 2007:01 2008:01 2009:01

US

D p

er m

etri

c to

n

import parity (tariff removedJanuary 28, 2009)

Nairobi wholesale

December 2008, Kenya

0

100

200

300

400

500

600

700

800

122000

124000

126000

128000

130000

132000

134000

136000

138000

06:01 06:07 07:01 07:07 08:01 08:07

imports through Mombasacif Nairobi w/o tariff

cif Nairobi w/ tariffNairobi wholesale

US

D p

er m

etri

c to

ntons im

ported

February 2009, Kenya – tariff removed

100

200

300

400

500

600

700

800

0

20000

40000

60000

80000

100000

120000

140000

2007:01 2007:07 2008:01 2008:07 2009:01

imports thru Mombasacif Nairobi w/ tariff

cif Nairobi w/o tariffwholesale markets, Nairobi

US

D p

er t

ontons im

ported

April 2009, Kenya

100

200

300

400

500

600

700

800

0

20000

40000

60000

80000

100000

120000

140000

2007:01 2007:07 2008:01 2008:07 2009:01

tons importedcif Nairobi w/tariff

cif Nairobi w/o tariffwholesale markets, Nairobi

US

D p

er m

etri

c to

ntons im

ported

August 2009, Kenya

100

200

300

400

500

600

700

800

0

20000

40000

60000

80000

100000

120000

140000

2007:01 2007:07 2008:01 2008:07 2009:01 2009:07

Imports to Mombasacif Nairobi with tariff

cif Nairobi w/o tariffwholesale markets, Nairobi

metric tons im

portedUS

D p

er m

etri

c to

n

Exercises

• Examine maize prices at– SAFEX– Blantyre, Malawi– & Transfer costs between them

• Compute the spatial price spread• Compute import parity prices at Blantyre• On the basis of spatial margins vs. transfer costs, predict

the months in which you would expect to see imports occurring

• Compare this with actual trade flows• Explain the reasons for what you see