1. The Integration of Food Markets in
Mozambique
Opportunities and Challenges
Bjorn Van Campenhout – IFPRI, Kampala
b.vancampehout@cgiar.org
Prepared for the IFPRI Maputo workshop on 18 November 2012 @
Hotel VIP

2. Significance
• Definition: Spatial market integration = net
producers are connected to net
consumers through price arbitrage
• Importance for Mozambique:
– Large ag potential of north and central
Mozambique to feed Maputo and rest of SE
Africa
– Food security: pockets of hunger are on the
increase due to climatic shocks

3. The Concept of Market Integration
- To integrate local markets into the wider economy,
the “transaction cost” is a key variable -
Until PE1' − PE 2' = T
S
S’
S
1
PE
1
PE ' 2
PE '
2
PE
D
D’
D
1 1 2 2
QE QE ' QE QE '

4. The Effect of Market Integration
Source: Jensen, 2007

5. The Theory of Spatial Price
Equilibrium
• Correlation coefficient
• Cointegration and error correction
• The parity bounds model
• Threshold autoregressive/cointegration
models

6. TAR models: piecewise linear
Δ(p1-
p2) at t
(p1-p2) at t-1
Slope:
adjustement
speed
-TC TC

7. TAR models: piecewise linear
Error correction
Transaction cost
Random walk (imposed)
Transaction cost
Error correction

8. Non-parametric extenstion
• TAR model, but estimate transaction cost
using locally weighted least squares
• Iterative method:
– Estimate a standard TAR model (ρ,TC)
– Fix adjustment parameter and estimate transaction
cost using locally weighted LS (TCt)
– Using new transaction cost, re-estimate adjustment
parameter
– Repeat until criterion is met (i.e.|Δρ|<0.0005)

9. Nominal price of Maize in 3 markets

10. Results – Estimated Parameters

11. Maputo - Maxixe

12. Selected Markets

13. Policy Options to Increase Market
Integration
• Transport infrastructure:
• Information systems
• Increase competition among traders ->
formalize trade of trader
– Credit
– Insurance
– Quality control