Transcript Import Parity Price - Food Security Analysis

Session 4.1.
Import Parity Price
WFP Markets Learning Programme
Price Analysis Training
4.1.1
Learning Objectives
By the end of this session, participants should be able to:
 Explain the concept of import parity price (IPP), its use &
value as a market analysis tool, and pros & cons of its use
 List types of data required to calculate IPP
 Analyze graph of import parity prices, identify implications
for food security analysis of changes in IPP
 Calculate import parity price for selected goods from
country/region in which the workshop is held
WFP Markets Learning Programme
Price Analysis Training
4.1.2
Quick Case
IPP Comparisons in Ethiopia
 Task: Read Quick Case and, with a partner, discuss questions below:
 High cereal prices continue to negatively affect the livelihoods of
many households in Ethiopia. Local cereal prices are now higher
than global market prices…imported wheat is currently cheaper
than local maize or sorghum. Local wheat price is US$ 605/MT
compared to import parity of US$ 355/MT.
 The situation is expected to further escalate as the hunger
season progresses from June to September.
 How is the difference in local and global food prices likely to impact food
security in Ethiopia – assuming free market conditions?
 How is the difference likely to impact small producers in Ethiopia?
WFP Markets Learning Programme
Price Analysis Training
4.2.3
Adapted from: OCHA Humanitarian Bulletin, Weekly Humanitarian Highlights in Ethiopia, 23 June 2008.
Import parity price
Definition and Objective
• IPP: the total cost (in domestic currency) of
delivering a good that is imported to the main
entry point in the importing country/province
(e.g. to port of import, major trading city, or
central warehousing location)
• IPP helps clarify whether the national market
is integrated into regional or world markets
WFP Markets Learning Programme
Price Analysis Training
4.1.4
Import parity price
Data required:
• cost of the commodity (fob) at the source
• freight, insurance & handling cost
• + domestic transport, handling & taxes (if
key destination is within importing
country)
• domestic wholesale price of the
commodity
WFP Markets Learning Programme
Price Analysis Training
4.1.5
Import parity price
Interpretation
• if a good is cheaper abroad (i.e. the domestic
price > the IPP), traders could have incentives
to import the good, assuming free trade
• comparison of the time series of domestic
wholesale prices, import parity prices and
import quantities of a good can give an
indication whether traders are responsive to
price changes and the reasons they are
WFP Markets Learning Programme
Price Analysis Training
4.1.6
IPP Example
Calculation:
India
Dhaka
Transport cost
Transport cost
wholesale
Official exchange Import tariff on rice
Over marketing
wholesale price
Delhi-Bangladesh
bangladesh border
price of rice
rate -D-Ecosts, margins -Gof rice -Aborder -Cto Dhaka -F-BTk/Kg
Rs/Kg
Rs/Kg
Tk/Rs
%
Tk/Kg
Tk/Kg
7.65
5.89
0.72
1.27
0
0.65
1.53
IPP at Bangladesh border
=((B+C)*D)*(1+E/100)
= 8.3947
IPP in Dhaka
=((B+C)*D)*(1+E/100)+F+G
= 10.5747
WFP Markets Learning Programme
Price Analysis Training
4.2.7
IPP Example
Whenever IPP < domestic wholesale prices, private imports flows in Dhaka
18
400
16
350
14
300
Price (Taka/kg)
250
10
200
8
Imports ('000 Mt)
12
150
6
100
4
50
2
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3
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93
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94
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7
8
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7
8
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94
94
Private Sector Imports
WFP Markets Learning Programme
Dhaka wholesale price
Price Analysis Training
IPP
4.2.8
Import Parity Price
Pros & Cons
Pros

Monitoring world markets & potential incentives for private
sector imports
Cons

Data availability

Could be misleading if trade barriers, status of
competition, trade uncertainties, public imports, internal
transport costs and parallel markets (black market
exchange rate, informal trade channels) are not analyzed.
WFP Markets Learning Programme
Price Analysis Training
4.2.9
Small Group Work
Please turn to Workbook Exercise 4.1.
The Marketastan File:
Wheat IPP for Marketastan
(use Excel data file: 4.1. Wheat IPP for Marketastan.xls)
WFP Markets Learning Programme
Price Analysis Training
1.4.10
Marketastan 4.1. Debriefing
 What are the likely implications for
household food security in Marketastan –
and for WFP - of the current IPP for wheat
(i.e. in the first few months of 2010? Why?
WFP Markets Learning Programme
Price Analysis Training
4.2.11
Wrap-up
IPP & Interpretation and Decision-making
Interpretation
• Informs availability: Important part of overall
Food Balances
• Informs responsiveness of private commercial
traders to shocks
Decision-making
• Amount of food aid required
• Local purchase vs. international purchase
• Purchase for Progress
WFP Markets Learning Programme
Price Analysis Training
4.1.12