usaid office of food for peace guatemala bellmon estimation

Market Integration for Food Security
Prepared by Fintrac Inc.
How Is Market Integration Measured? Markets are said to be integrated when the price in one market affects
prices in others through trade flow adjustments. A simple, but imperfect method to measure spatial market
integration is the bivariate correlation coefficient (Barrett, 1996). This method uses the Pearson correlation
coefficient, a scale-free measure of the covariance between two price series, giving values between –1.00 and
1.00. Statistically significant and positive correlation coefficients indicate a spatial integration between the
respective pair of markets through trade; and the higher the correlation coefficient (the closer to 1), the greater
the degree of market integration. Absence of statistically significant price correlations suggests that markets are
not linked, and prices are determined independently from one market to another.
Why Is Market Integration Important? Market analysis is important to food security assessments because; a)
understanding how markets operate provides important insights into the impact and value of various responses in
times of crisis (e.g., food aid versus cash transfers), b) the systematic collection of price data from various
markets provides a baseline for comparison, early warning, and analysis, and c) when markets are wellintegrated,
cash transfers are appropriate because suppliers and traders will respond favorably to increases in
household demand (Beekhuis & Laouali, 2007).
International market integration. For most staples, local production and trade are more likely
to influence greater price variations in Guatemala than international market prices. While
Guatemala is import dependent on rice and wheat, it is not in maize and beans (De Janvry &
Sadoulet, 2009). In the case of rice, the import dependency is quite high (68 percent) and there
is a quasi monopoly in imports by a few mills. However, very low consumption (5 percent), a
high import out-of-quota tariff, and competition with contraband rice coming from the United
States through Mexico contribute to decrease the effect of price variations on local markets due
to international price shocks (e.g., 2008 food crisis). On the other hand, maize is widely
consumed in the country, but import dependency is very low (35 percent for yellow maize for
human consumption, and nearly zero percent for white maize) which contributes to a low price
variation in the country due to external shocks (De Janvry & Sadoulet, 2009).
Cross-border market integration. Cross-border trade takes place with all neighboring
countries; however, trade is generally un-registered. Usually, cross-border trade depends on
season and local food availability. Basic grains are informally traded with Mexico, El Salvador,
Honduras and Costa Rica. Commonly, transporters or intermediaries buy agricultural products
from Guatemala and take them to different markets, where they cross ―blind spots‖- areas
where no formal custom control exists. While there is no official record of the exact amount that
is traded in these areas, it is believed that the volume and value is quite substantial
(Zappacosta, 2005). According to some estimations based on available data, among Central
American counties intraregional exports increased from US$671 million in 1990 to US$3,912
million in 2005, out of which 32 percent were agricultural products (RUTA, 2008).
Market integration with Mexico is particularly important for food security. Guatemala has
approximately 963 km of border with Mexico. Four departments (Petén, Quiche, San Marcos y
Huehuetenango) border with the Mexican states of Campeche, Quintana Roo, Tabasco y
Chiapas. On the Guatemalan side, Huehuetenango is one of the largest and most populated
departments bordering Mexico. Despite the poverty observed in this area, coffee production and
trade is major as well as trade of natural resources and other mostly illegal products (Carrillo,
Mas alla de la invisibilidad: trabajo femenino en la frontera Mexico-Guatemala 2001). People
from Huehuetenango frequently migrate to seasonal jobs in coffee plantations in Mexico or
within Guatemala. Thus, border crossing is very common and it is also a survival resource for
many people. Generally, people trade basic consumption products on a small-scale, with most
products coming from Mexico and entering Guatemala without being recorded. While cross-
BEST Analysis – Country Guatemala Chapter 6 – Distributed Food Aid 92