In early 2016, Malawi suffered its second consecutive year of harvest failure. An emergency was declared in April 2016 and the resulting humanitarian response, known as the Food Insecurity Response Program (FIRP), was of unprecedented scale: almost 40 percent of the population received in-kind food or cash transfers (or both) at an estimated cost of US$ 287 million. Yet despite the extensive nature of the response, prices for the main food staple, maize, stayed relatively ‘flat’ throughout most of the year and then declined during the pre-harvest lean season. This Working Paper examines what explains this paradox, focusing on why in-kind food distribution did not depress maize prices while cash transfers did not raise them. Using daily information on maize prices, and food and cash transfers from ten major markets during the height of the FIRP, this paper employs time series methods to analyze the properties of the series and model the formation of maize prices using autoregressive distributed lag models. The authors find limited evidence of price linkages between markets and almost no impact of food distribution and cash transfers on maize prices. Sen’s distinction between direct and trade-based entitlements is used to help explain this paradox.
Authors: Bob Baulch, Anderson Gondwe, and Chiyembekezo Chafuwa, 2018.
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