Transcript Introduction to Prices

LOCAL AND REGIONAL PROCUREMENT
4. Introduction to Prices
LRP Market Monitoring Training
Prices
 Price is the cost or value of a good or service expressed in
monetary terms.
 Price indicates the value that has been given to a particular
commodity.
 Price signals carry information about the cost of production,
transportation, storage, quality, perceptions and desires and,
in some cases, government policies or distortions.
 Commodities have different prices at different market levels:
 Farmgate price
 Wholesale price
 Retail price
Prices along the Commodity Chain
 Farmgate: prices paid to producers by brokers,
aggregators, wholesalers and other market agents.
 Wholesale: intermediary prices paid during
transactions among brokers, aggregators and
wholesalers. We are concerned with the prices that
retailers pay to wholesalers.
 Retail: prices paid by households or individual
consumers.
Prices within Commodity Chain Levels
 Along a commodity supply chain, each trader buys and
sells at different prices
 Buying price – the price paid by a buyer of goods or services,
e.g. the price the wholesalers pays the farmer.
 Selling price – the price the seller receives from a buyer of
good or services, e.g. the price the wholesaler receives from the
retailer.
 In most cases, the selling price will be greater than the
buying price to reflect the value added at that level of the
market chain.
Determinants of prices
 Prices are a function of the supply and demand for a
commodity in a market.
 Market supply – the amount of commodity being
offered in the market.
 Can come from local production, private or public stocks,
regional and international trade and food aid.
 Market demand – the amount of a particular good or
service that a consumer or group of consumers will want
to purchase at a given price.
 Only people who can pay for their food have effective
demand.
Supply and Demand
How Supply and Demand Affect Prices
Supply
Prices
?
Demand
Prices
?
Factors Affecting Supply and Demand
Source: Timmer (2008) “Causes of High Food Prices.” Asian Development Outlook 2008
Update. P. 78
Global commodity prices driven by poor
harvests, demand and speculation
THE USDA's shockingly low yield
projection for the US 2010 maize
crop has re-ignited price momentum,
propelling prices to new 26-month
highs. World maize demand is seen
25m tonnes up this season as the US
and China consume more in ethanol
and feeds, while other users try to
find alternatives for shortfall in
Russian wheat supplies.
Seasonality (Temporal Integration):
Maize Calendar in Mozambique
Seasonality: FEWs Average Maize
Prices in Mozambique
Trade flows (Spatial integration): Maize
production and flows in Mozambique
Policy Impacts on Prices
 Changing price
 Subsidies
 Price ceilings, floors
 Taxes and tariffs
 Shifting supply and demand
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Restrictions on imports
Restrictions on exports
Non-tariff barriers
Public stockholding and sales
Income transfers, food aid deliveries, LRP
 Exchange rates
Inflation
 Inflation is an overall rise in the prices of good sand services
in an economy, due to the decrease of the value of money.
 Nominal prices – the actual prices that you observe in the
market.
 Real prices – prices that have been adjusted for inflation.
Other Determinants of Price
 Type of product
 Product quality
 Amount of product
 Packaging
 Time of sale
 Place of sale
 Processing
 Marketing/contracts
FEWs: Policy impacts (Lesson 3, p. 24)
16
FEWs: Policy impacts (Lesson 3, p. 24)
17
References
 Barrett, C. and E. Lentz (2010). Draft AEM 6940 MIFIRA
Lecture Notes: Lecture 4.
 FEWs Net (2008) “Market Assessment and Analysis: Learners
Notes.” FAO.
 Lentz, E (2010). Technical Guidance on Collecting Price
Data : Sheet 1.