1. PAT Seasonality and Volatility Session 3.2. WFP Markets Learning Programme3.2. 1 Price Analysis Training

2. Learning objectives By the end of this session, participants should be able to:  Explain concepts of seasonality & volatility, their value in monitoring supply/demand abnormalities, in predicting increasing/decreasing vulnerability to shocks & their impact on WFP programme design & implementation  Explain implications of seasonality & volatility on HH FS  Analyze graph of nominal prices, identify key seasonal trends, & explain implications for food security analysis  Calculate 5-year averages & compare normality/abnormality of a price change to a seasonal reference  Analyze graph of nominal prices, identify if volatility is present & should be further evaluated for food security analysis  Calculate month-to-month % changes & evaluate magnitude of volatility WFP Markets Learning Programme 3.2 2 Price Analysis Training

3. Seasonality  Month to month price fluctuations may represent normal seasonal cycles which are determined by: seasonal calendar (harvest, lean season) longer cycles relating to drought, flooding etc…  Normal price trends or cycles are identified by comparing to long-run averages (typically 5-year averages)  Particularly useful in a monitoring context to signal possible abnormalities in supply/demand WFP Markets Learning Programme 3.2 3 Price Analysis Training

4. Quick Case Seasonal Impacts on Food Prices in Mozambique WFP Markets Learning Programme Price Analysis Training 2.3.4 Task: Read Quick Case and, with a partner, discuss questions below: Analysis of maize prices in Mozambique shows significant price fluctuation since 2003. In 2008 maize prices were 50% above 5 year average & 66% above 2007’s average in Maputo. In Beira maize prices were 65% above 5 year average and 83% above same time in 2007. Current causes of high food prices appear cyclical and seasonal depending more on climate extreme conditions (e.g. droughts, floods, cyclones). Southern Mozambique generally experiences high food prices because of drought; rural areas in south are remote, isolated from markets. Other drivers include decline in government grain reserves, high cost of fuel, increased demand for maize by milling companies. According to the case, what are the reasons for food price fluctuation in Mozambique? How do seasonal concerns play a role in these fluctuations? Adapted from: Gandure, Dr. Sithabiso, “High Food Prices in the Eastern, Central and Southern Africa: Assessing Impact and Tracking Progress Towards Meeting the CFA Objectives,” WFP, December 2008.

5. Price Seasonality WFP Markets Learning Programme Price Analysis Training 3.2.5

6. Seasonal rice price – Lao PDR WFP Markets Learning Programme Price Analysis Training 3.2.6 Food prices decrease from Oct to Dec due to increased availability of rice from main rice harvest season in lowlands. Subsequent months of rice harvest in the uplands from January to March have less impact on food prices because of limited production. From March to October, trading of small quantities for nonfood needs and own consumption reduce food availability, resulting in upward trend of food prices.

7. Quick Case Price Seasonals in Benin Task: Read Quick Case and, with a partner, discuss questions below: “After peaking in August, the price of beans has fallen by 34% over the past two months. As with maize, this is mainly due to the harvest, with the important exception that the downturn pressure is steeper than the usual seasonal trend. In fact, from August until October the price of beans normally does not decrease at all, as the usual downturn usually occurs between the month of October and the end of the year. Another similarity vis-à-vis maize is that despite the recent drop, the price is still 18% higher than seasonal trend and 60% higher than last year’s level.”  What is the “normal” seasonal price trend for beans in Benin?  What might account for differences from the normal trend this year ? WFP Market Bulletin, November 2008. WFP Markets Learning Programme Price Analysis Training 3.2.7

8. Price Seasonals: Volatility Excessive month-to-month changes that are not explained by seasonality or normal trends imply price volatility & greater uncertainty WFP Markets Learning Programme3.2.8

9. Price Seasonals: Volatility  Lower volatility: means prices decline less during harvest time; farmers who sell get better prices means prices rise less during lean season; HHs who buy pay lower prices reduces uncertainty  HHs facing less uncertainty might avoid strategies that make them less vulnerable to shocks, but also generally yield lower incomes WFP Markets Learning Programme Price Analysis Training 3.2.9

10. Price Seasonals: Volatility Volatility measured with a “Coefficient of Variation” (“CV”)  Measures amount of dispersion of prices over time & space  Looking at short-term moving average of CV can help in monitoring and early warning of market instabilities  3-5-7 month CMAs can be calculated of the CV for a shorter view on volatility in prices General formula:  Where sigma = standard deviation and miu = average WFP Markets Learning Programme Price Analysis Training 3.2.10

11. Price Seasonals – Volatility across space Prices in rest of Sudan appear more volatile than prices in Darfur Volatility in prices in rest of Sudan and Darfur began a downward trend in 2007 WFP Markets Learning Programme Price Analysis Training 3.2.11

12. Price Seasonals – Volatility across space Volatility of relative sorghum prices in Sudan WFP Markets Learning Programme Price Analysis Training 3.2.12

13. Price Seasonals – Volatility across time Volatility of average national sorghum prices across time WFP Markets Learning Programme Price Analysis Training 3.2.13

14. Please turn to Workbook Exercise 3.2. The Marketastan File: Seasonality in Northern Marketastan, Parts I and II (use Excel data file: 3.2. Marketastan Seasonality Exercise.xls) WFP Markets Learning Programme Price Analysis Training 1.4.14 Small Group Work

15. Marketastan 3.2. Debriefing Part I: 1.Wheat price trends for 3 regions for past five years. What do you observe? 2.5-year averages for wheat prices for 3 regions. What do you observe with regard to seasonality? 3.Seasonal index for 3 regions. What do you observe? 4.How would you respond to the Commissioner’s remarks? Is he correct? Is current situation in North abnormal? Why? WFP Markets Learning Programme Price Analysis Training 3.2.15

16. Marketastan 3.2. Debriefing Part II:  How does your volatility analysis support – or refute – your analysis from Part I of this exercise?  Do you agree with the Commissioner? WFP Markets Learning Programme Price Analysis Training 3.2.16

17. Wrap-Up Seasonality & Volatility Analyses Interpretation:  Informs supply: seasonality of production, supply shocks, frequency of droughts, floods, pests, diseases…  Informs access: price volatility flags risk and vulnerability factor  Complementary information needs: Livelihoods profiling: terms of trade History of shocks and monitoring of contextual factors Decision-making:  Informs important aspects related to: Volatility  Free food vs. food-for-work or cash/voucher Seasonality  Timing of food assistance Seasonality and Volatility  Local purchase (timing) Early warning WFP Markets Learning Programme Price Analysis Training 3.2.17

18. Outstanding concerns? WFP Markets Learning Programme Price Analysis Training 3.2.18