LOCAL AND REGIONAL

PROCUREMENT
4. Introduction to Prices
LRP Market Monitoring Training

Prices
Price is the cost or value of a good or service

expressed in monetary terms.

Price indicates the value that has been given to
a particular commodity.
Price signals carry information about the cost
of production, transportation, storage, quality,
perceptions and desires and, in some cases,
government policies or distortions.
Commodities have different prices at different
market levels:
Farmgate price
Wholesale price
Retail price

Prices along the Commodity

Chain
Farmgate: prices paid to producers by

brokers, aggregators, wholesalers and other

market agents.
Wholesale: intermediary prices paid during

transactions among brokers, aggregators

and wholesalers. We are concerned with the
prices that retailers pay to wholesalers.
Retail: prices paid by households or

individual consumers.

Prices within Commodity Chain

Levels
Along a commodity supply chain, each

trader buys and sells at different prices

Buying price the price paid by a buyer of

goods or services, e.g. the price the

wholesalers pays the farmer.

Selling price the price the seller receives

from a buyer of good or services, e.g. the price

the wholesaler receives from the retailer.

In most cases, the selling price will be greater

than the buying price to reflect the value

added at that level of the market chain.

Determinants of prices
Prices are a function of the supply and demand for

a commodity in a market.

Market supply the amount of commodity

being offered in the market.

Can come from local production, private or public

stocks, regional and international trade and food aid.

Market demand the amount of a particular

good or service that a consumer or group of

consumers will want to purchase at a given
price.
Only people who can pay for their food have

effective demand.

Supply and Demand

How Supply and Demand Affect

Prices

Prices

Demand Prices

Supply

Factors Affecting Supply and

Demand

Source: Timmer (2008) Causes of High Food Prices. Asian

Development Outlook 2008 Update. P. 78

Global commodity prices driven

by poor harvests, demand and
speculation

THE USDA's shockingly low

yield projection for the US
2010 maize crop has reignited price momentum,
propelling prices to new
26-month highs. World
maize demand is seen
25m tonnes up this season
as the US and China
consume more in ethanol
and feeds, while other
users try to find
alternatives for shortfall in

Seasonality (Temporal
Integration): Maize Calendar in
Mozambique

Seasonality: FEWs Average

Maize Prices in Mozambique

Trade flows (Spatial integration):

Maize production and flows in
Mozambique

Policy Impacts on Prices

Changing price
Subsidies
Price ceilings, floors
Taxes and tariffs

Shifting supply and demand

Restrictions on imports
Restrictions on exports
Non-tariff barriers
Public stockholding and sales
Income transfers, food aid deliveries, LRP

Exchange rates

Inflation
Inflation is an overall rise in the prices of

good sand services in an economy, due to

the decrease of the value of money.
Nominal prices the actual prices that you
observe in the market.
Real prices prices that have been
adjusted for inflation.

Other Determinants of Price

Type of product
Product quality
Amount of product
Packaging
Time of sale
Place of sale
Processing
Marketing/contracts

FEWs: Policy impacts (Lesson 3,

p. 24)

16

FEWs: Policy impacts (Lesson 3,

p. 24)

17

References
Barrett, C. and E. Lentz (2010). Draft AEM

6940 MIFIRA Lecture Notes: Lecture 4.

FEWs Net (2008) Market Assessment and
Analysis: Learners Notes. FAO.
Lentz, E (2010). Technical Guidance on
Collecting Price Data : Sheet 1.