PAT
Seasonality andVolatility
Session 3.2.
WFP Markets Learning Programme
3.2. 1
Price Analysis Training
Learning objectives
By the end of this session, participants should be able to:
Explain concepts of seasonality & volatility, their value in monitoringsupply/demand abnormalities, in predicting increasing/decreasing vulnerabilityto 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, & explainimplications for food security analysis
Calculate 5-year averages & compare normality/abnormality of a price changeto a seasonal reference
Analyze graph of nominal prices, identify if volatility is present & should befurther evaluated for food security analysis
Calculate month-to-month % changes & evaluate magnitude of volatility
WFP Markets Learning Programme
3.2 2
Price Analysis Training
Seasonality
Month to month price fluctuations may represent normalseasonal 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 comparingto long-run averages (typically 5-year averages)
Particularly useful in a monitoring context to signal possibleabnormalities in supply/demand
WFP Markets Learning Programme
3.2 3
Price Analysis Training
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 fluctuationsince 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 5year average and 83% above same time in 2007.
Current causes of high food prices appear cyclical and seasonal dependingmore on climate extreme conditions (e.g. droughts, floods, cyclones). SouthernMozambique generally experiences high food prices because of drought; ruralareas in south are remote, isolated from markets. Other drivers include declinein government grain reserves, high cost of fuel, increased demand for maizeby milling companies.
•According to the case, what are the reasons for food price fluctuation inMozambique?
•How do seasonal concerns play a role in these fluctuations?
![C:\Documents and Settings\Jeff\Local Settings\Temporary Internet Files\Content.IE5\LUSMVHAN\MPj03057610000[1].jpg](data/images/img4.jpg)
Adapted from: Gandure, Dr. Sithabiso, “High Food Prices in the Eastern, Central and Southern Africa: Assessing Impact andTracking Progress Towards Meeting the CFA Objectives,” WFP, December 2008.
Price Seasonality
WFP Markets Learning Programme
Price Analysis Training
3.2.5
Seasonal rice price – Lao PDR
WFP Markets Learning Programme
Price Analysis Training
3.2.6
Food prices decrease fromOct to Dec due to increasedavailability of rice from mainrice harvest season inlowlands. Subsequent monthsof rice harvest in the uplandsfrom January to March haveless impact on food pricesbecause of limited production.From March to October,trading of small quantities fornonfood needs and ownconsumption reduce foodavailability, resulting inupward trend of food prices.
Quick CasePrice 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 thepast two months. As with maize, this is mainly due to the harvest, withthe important exception that the downturn pressure is steeper than theusual seasonal trend. In fact, from August until October the price ofbeans normally does not decrease at all, as the usual downturn usuallyoccurs between the month of October and the end of the year.
Another similarity vis-à-vis maize is that despite the recent drop, theprice is still 18% higher than seasonal trend and 60% higher than lastyear’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
Price Seasonals: Volatility
Excessive month-to-monthchanges that are notexplained by seasonality ornormal trends imply pricevolatility & greater uncertainty
WFP Markets Learning Programme
3.2.8
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; HHswho buy pay lower prices
•reduces uncertainty
HHs facing less uncertainty might avoid strategiesthat make them less vulnerable to shocks, but alsogenerally yield lower incomes
WFP Markets Learning Programme
Price Analysis Training
3.2.9
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 inmonitoring and early warning of market instabilities
3-5-7 month CMAs can be calculated of the CV for ashorter view on volatility in prices
General formula:
Where sigma = standard deviation and miu = average
WFP Markets Learning Programme
Price Analysis Training
3.2.10
Price Seasonals – Volatility acrossspace
Prices in restof Sudanappear morevolatile thanprices in Darfur
Volatility inprices in rest ofSudan andDarfur began adownwardtrend in 2007
WFP Markets Learning Programme
Price Analysis Training
3.2.11
Price Seasonals – Volatility acrossspace
Volatility of relative sorghum prices in Sudan
WFP Markets Learning Programme
Price Analysis Training
3.2.12
Price Seasonals – Volatility acrosstime
Volatility of average national sorghum prices across time
WFP Markets Learning Programme
Price Analysis Training
3.2.13
Please turn to Workbook Exercise 3.2.
The Marketastan File:Seasonality in NorthernMarketastan, 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
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. Whatdo you observe with regard to seasonality?
3.Seasonal index for 3 regions. What do you observe?
4.How would you respond to the Commissioner’sremarks? Is he correct? Is current situation in Northabnormal? Why?
WFP Markets Learning Programme
Price Analysis Training
3.2.15
Marketastan 3.2. Debriefing
Part II:
How does your volatility analysis support –or refute – your analysis from Part I of thisexercise?
Do you agree with the Commissioner?
WFP Markets Learning Programme
Price Analysis Training
3.2.16
Wrap-UpSeasonality & 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
Outstanding concerns?
WFP Markets Learning Programme
Price Analysis Training
3.2.18