Decomposing Producer Price Risk: An Analysis of Livestock Markets in Northern Kenya

Posted: 19 Jul 2001 Last revised: 21 May 2011

See all articles by Christopher B. Barrett

Christopher B. Barrett

Cornell University - Charles H. Dyson School of Applied Economics & Management

Winnie Luseno

RTI International

Date Written: April 1, 2001

Abstract

This paper introduces a simple, intuitive method of producer price risk decomposition. Applied to a rich set of transactions-level data from livestock markets in northern Kenya, the statistical results prove quite consistent with qualitative descriptions of the functioning of these markets. Large and variable inter-market basis is the single most important factor in explaining producer price risk in animals typically traded between markets. Local market conditions explain most price risk in other markets, in which traded animals rarely exit the region. Seasonality accounts for relatively little price risk faced by pastoralists in the dry lands of northern Kenya. The practical policy implication of these findings is that high, volatile costs of spatial arbitrage and intertemporally inconsistent competitiveness within and between markets appear the main source of the livestock price volatility that concerns poor pastoralist populations in the northern rangelands. It seems unlikely that one can effectively mitigate the problem of extraordinary livestock producer price risk in northern Kenya without directly improving inter-market arbitrage, whether through efforts to reduce and stabilize transport costs, to improve physical security, or to stimulate new entry into the sub-sector.

Suggested Citation

Barrett, Christopher B. and Luseno, Winnie, Decomposing Producer Price Risk: An Analysis of Livestock Markets in Northern Kenya (April 1, 2001). Food Policy, Vol. 29, No. 4, 2004, Available at SSRN: https://ssrn.com/abstract=270489 or http://dx.doi.org/10.2139/ssrn.270489

Christopher B. Barrett (Contact Author)

Cornell University - Charles H. Dyson School of Applied Economics & Management ( email )

315 Warren Hall
Ithaca, NY 14853-7801
United States
607-255-4489 (Phone)
607-255-9984 (Fax)

HOME PAGE: http://aem.cornell.edu/faculty_sites/cbb2/

Winnie Luseno

RTI International ( email )

3040 Cornwallis Road
PO Box 12194
RTP, NC 27709-2194
United States
9195416000 (Phone)
9194855555 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,255
PlumX Metrics