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The Impact of Domestic and International Commodity Price Volatility on Agricultural Income Instability: Ghana, Vietnam and Peru

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  • Rapsomanikis, George
  • Sarris, Alexander
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    Abstract

    The extent to which commodity price volatility affects the income of producing households and their vulnerability to poverty and food insecurity depends on household diversification patterns and the degree of their exposure to markets. This article focuses on estimating agricultural income uncertainties for a number of different household types in Ghana, Vietnam and Peru. We develop explicit formulae for household income variance, and we combine information from household datasets and commodity price time-series in order to estimate the income uncertainty that emanates from price and production volatility under different scenarios of exposure to international and domestic markets shocks. Our results indicate that market and nonmarket uncertainties significantly affect the variability of agricultural income of households in these countries, and especially households that are specialized in a few commodities. However, it turns out that, under current policies, almost all of their income variability is due to domestic factors, with international prices not contributing much, at least in the short run. Wider exposure to international markets would increase the income variability of producers who have been subjected to domestic market stabilization policies in Ghana and Vietnam, while it would decrease it in the case of Peru.

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    File URL: http://www.wider.unu.edu/stc/repec/pdfs/rp2006/dp2006-04.pdf
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    Bibliographic Info

    Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number DP2006/04.

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    Length: 24 pages
    Date of creation: 2006
    Date of revision:
    Handle: RePEc:unu:wpaper:dp2006-04

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    Keywords: commodity prices; risk; households;

    References

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    1. Dehn, Jan, 2000. "Commodity price uncertainty in developing countries," Policy Research Working Paper Series 2426, The World Bank.
    2. Rosenzweig, Mark R. & Binswanger, Hans P., 1989. "Wealth, Weather Risk and the Composition and Profitability of Agricultural Investments," Bulletins 7455, University of Minnesota, Economic Development Center.
    3. Jalan, Jyotsna & Ravallion, Martin, 1997. "Are the poor less well-insured? Evidence on vulnerability to income risk in rural China," Policy Research Working Paper Series 1863, The World Bank.
    4. Jan Dehn, 2000. "Commodity price uncertainty in developing countries," CSAE Working Paper Series 2000-12, Centre for the Study of African Economies, University of Oxford.
    5. Collier, Paul & Dehn, Jan, 2001. "Aid, shocks, and growth," Policy Research Working Paper Series 2688, The World Bank.
    6. Fafchamps, Marcel & Udry, Christopher & Czukas, Katherine, 1998. "Drought and saving in West Africa: are livestock a buffer stock?," Journal of Development Economics, Elsevier, vol. 55(2), pages 273-305, April.
    7. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
    8. Rosenzweig, Mark R. & Wolpin, Kenneth I., 1989. "Credit Market Constraints, Consumption Smoothing and the Accumulation of Durable Production Assets in Low-Income Countries: Investments in Bullocks in India," Bulletins 7487, University of Minnesota, Economic Development Center.
    9. Jonathan Morduch, 1995. "Income Smoothing and Consumption Smoothing," Harvard Institute of Economic Research Working Papers 1727, Harvard - Institute of Economic Research.
    10. Zimmerman, Frederick J. & Carter, Michael R., 2003. "Asset smoothing, consumption smoothing and the reproduction of inequality under risk and subsistence constraints," Journal of Development Economics, Elsevier, vol. 71(2), pages 233-260, August.
    11. Sarris, Alexander, 2002. "The demand for commodity insurance by developing country agricultural producers - theory and an application to cocoa in Ghana," Policy Research Working Paper Series 2887, The World Bank.
    12. Diaz-Bonilla, Eugenio & Thomas, Marcelle & Robinson, Sherman & Cattaneo, Andrea, 2000. "Food security and trade negotiations in the World Trade Organization," TMD discussion papers 59, International Food Policy Research Institute (IFPRI).
    13. Carter, Michael R, 1997. "Environment, Technology, and the Social Articulation of Risk in West African Agriculture," Economic Development and Cultural Change, University of Chicago Press, vol. 45(3), pages 557-90, April.
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    Cited by:
    1. Hardeweg, Bernd & Wagener, Andreas & Waibel, Hermann, 2013. "A distributional approach to comparing vulnerability, applied to rural provinces in Thailand and Vietnam," Journal of Asian Economics, Elsevier, vol. 25(C), pages 53-65.
    2. Chamberlin, Jordan, 2008. "It's a small world after all: Defining smallholder agriculture in Ghana," IFPRI discussion papers 823, International Food Policy Research Institute (IFPRI).

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