Data sources
Data limitations
Border equivalent prices
The estimation of real prices
The nominal protection coefficient
The time-series data on official and market prices that were used for the analysis presented in Chapter 4 were collected from the study countries during 1988. Each study country, apart from Ethiopia, was visited for two weeks to confer with policy makers and scientists familiar with the livestock subsector and to obtain copies of existing documents and studies relating to the sector. These documents, amongst other things, provided the data used in estimating transport and processing costs in those instances where these costs were not directly provided by marketing agencies of the study countries. The data collected during field visits were also supplemented with published statistics on world prices, sea freight rates, exchange rates and consumer price indices from a variety of sources including the FAO Monthly Bulletin of Statistics, ILO (1981 and 1988), IMF (1987) and World Bank (1986b).
Although attempts were made to improve upon the data used for the analysis, there are still various limitations in them. In the first instance, the producer price series available in some countries refer to intermediate market (i.e. market between rural and urban centres), rather than farm-gate prices. In such cases, various deductions may be required to arrive at actual farm-gate prices. These deductions relating to transport and marketing charges were made in those instances where there was sufficient information to do so. However, in other cases, rather than make deductions on the basis of inadequate information, no attempt was made to adjust the intermediate market prices.
Secondly, the consumer prices used for the analysis refer to retail prices in the capital cities. Rural retail prices have been largely ignored and in any case were mostly unavailable. In some cases, official retail prices were used where actual market prices were unavailable. The use of official retail prices may, however, give a misleading picture as to the actual changes in the market prices of the products considered. Overall, these limitations call for caution in interpreting the results reported in the study.
Border equivalent prices, or world prices adjusted for transport, marketing and processing costs, were estimated to serve as yardsticks and to indicate the extent to which domestic prices have been distorted by government intervention. For an imported commodity, the border price was computed by taking the appropriate international price and adding sea freight and insurance charges to obtain the c.i.f. price which was then converted into local currency at the official exchange rate. To this price, handling, transport and marketing charges from the border to the domestic market were added to arrive at the equivalent market price for the imported commodity.
From the latter, transport, processing and marketing charges from the farm to the market were deducted to obtain the border equivalent producer price at the farm gate. Algebraically, the border equivalent producer price at the farm gate for an imported commodity is thus:
Pb = (Pw + Tw) + Td Cd
where:
Pb is the border equivalent producer price at the farm gate;
Pw is the world price;
Tw represents ocean freight and insurance charges;
(Pw + Tw) represents the c.i.f price which was converted to local currency at the official exchange rate;
Td represents handling, transport and marketing charges from port to the domestic market;
Cd represents transport, processing and marketing charges from farm gate to domestic market.
For an export commodity, the border equivalent producer price at the farm gate was derived in a slightly different way. In this case, ocean freight and insurance charges were deducted from the world price to give the f.o.b. border price. From the latter, transport, processing and marketing charges from the farm to the domestic market were deducted and the value of by-products added to arrive at the border equivalent producer price. In symbols:
Pb = Pw - Tw - Td - Cd + Vb
where:
Vb is the value of by-products.
In all cases, the reference market was assumed to be the largest city - usually the capital city.
However, the case of Mali deserves special mention. Although Mali was classified as an exporter, the border equivalent price for Malian producers was not estimated as explained above. The land-locked nature of the country and the fact that Mali's traditional export market had always been Côte d'Ivoire necessitated a different approach. Thus, for beef and mutton in Mali, the border equivalent price was estimated by using c.i.f. price in Abidjan port rather than Pw as the starting point of the analysis - the assumption being that Abidjan is the place where beef from Mali will have to compete with imported beef.
Also at this point, it is worthwhile to briefly examine the world market prices used in this study as reference prices. Due to the existence of a number of widely differing world price series for livestock products, it is difficult to find a single price series that will be adequate for all purposes, i.e. that will take into account the specificity of meat grades as well as the diversity that exists between different types of exporters on the one hand and between importers and exporters on the other. Nevertheless, to provide a common basis for comparison between countries, for each product considered in the study (e.g. beef) the same world price was used for all the study countries. This approach suffers from the shortcoming of not properly accounting for the regional trade flows among neighbouring countries (this was taken into consideration in the case of Mali as discussed above), but the approach is justified in the sense that it provides a common basis for comparison among all the study countries and better reflects the extent of distortion of domestic prices.
Thus for beef, Argentinian f.o.b. prices for frozen boneless beef were used. These were converted into carcass weight equivalent prices for the estimation of border equivalent producer prices. For mutton, London wholesale prices for New Zealand frozen whole carcass were used. Both prices were taken from the IMF Financial Statistical Yearbook. The world price for reconstituted milk was obtained as a composite of the prices of skim milk powder and butteroil. Both prices were taken from various issues of the FAO Commodity Review and Food Outlook.
Throughout Chapter 4, real prices have been computed by using the consumer price index (CPI) to deflate actual producer and consumer prices. The CPI was used as a deflator of nominal producer prices in order to estimate the producers' real purchasing power and its incentive (or disincentive) effect on livestock production. For the same set of prices the producer price index (PPI) could have been used, instead of the CPI, to give an idea of the net return to livestock production vis-a-vis other agricultural production activities. However, the CPI was the only readily available and most consistent price series in all the countries studied. The analysis was, therefore, confined to the use of the CPI alone.
The CPI published in the IMF International Financial Statistics Yearbook was used for each country, except Mali. In the case of Mali, a CPI did not exist prior to 1988. The ILO Yearbook of Labour Statistics, however, contains a food price index (FPI) for Mali and this was used to deflate nominal prices in that country.
Real border prices were computed by deflating nominal border prices (obtained as explained above) by the CPI or the FPI in the Malian case.
The nominal protection coefficient (NPC) measures the extent to which domestic prices diverge from border equivalent prices. For producer prices, it was estimated as follows:
where:
NPC = Pd/PbPd is the domestic producer price; and
Pb is the border equivalent producer price computed as explained above.
