Transmission of Food Price Volatility from International to Domestic Markets: Evidence from Africa, Latin America, and South Asia

Abstract

Understanding the degree to which international food price volatility is transmitted to markets in developing countries is critical for helping design better policies to cope with volatility and protect vulnerable groups. This chapter uses a multivariate GARCH approach to model price volatility transmission from world grain markets to 41 markets in 27 developing countries. We found that maize prices are more volatile than rice and wheat prices and that prices in Africa are more volatile than those in Latin America and South Asia. International grain price volatility is most likely to be transmitted to domestic markets for wheat, followed by rice and then maize. Furthermore, international price volatility is most likely to be transmitted to markets in South America, followed by Asia, Africa, and then Central America. Price volatility transmission seems to occur more often when international trade in a commodity is large relative to the commodity’s domestic production or consumption.