Abstract
In this article, we demonstrated the dynamic impact of a bumper harvest and drought shocks on the maize market and on the trade regime in Ethiopia. Regional market integration of Ethiopia’s white maize market with the South Sudan and Kenyan maize markets was also examined using cointegration analysis. Despite the renewed conflict in South Sudan, Addis Ababa maize market is cointegrated with Juba’s maize market. The simulation analysis indicated that a 20% increase in maize yield could reduce the maize price by 81%. This implies a decrease in the maize price level of 70% (110 USD/t) below the export parity price. This makes maize exports profitable and shifts the trade regime from autarky to an export parity regime. On the other hand, the effect of a drought could increase maize prices by 61% in the short run (within the year). At the current market price, the domestic maize price is wandering between the border prices and it is unprofitable to export maize. Therefore, lifting the export ban, even during normal harvest seasons, would not do any harm to the domestic maize price.
Highlights
In many African countries, the majority of households spend much of their expenditure on food items.1 As a result, high food prices present huge risks to the food security status of the region
Because of an increase in the maize yield, the domestic maize price would become lower than the export parity price for the shock period
From the yield simulation analysis, we found that a 20% increase in maize yield would result in an increase in maize production by 20%
Summary
In many African countries, the majority of households spend much of their expenditure on food items.1 As a result, high food prices present huge risks to the food security status of the region. Since Ethiopia has been a major recipient of food aid, food aid agencies would benefit from a likely impact of weatherinduced shocks on maize production, market price, consumption, and government stocks. Model structure A single commodity partial equilibrium framework was used to investigate the maize price formation and a likely impact of a bumper harvest and drought shocks on the maize market.
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