THE IMPACT OF GLOBAL PRICE

INSTABILITY ON CAMEROON
CEREAL MARKETS
J.J. Ambagna1 and G.Q. Kane2

THE IMPACT OF GLOBAL PRICE INSTABILITY

ON CAMEROON CEREAL MARKETS 179
ABSTRACT
The Cameroon economy is dependent on
international food markets to feed the country’s
population, but the instability of these markets
creates unfavourable prices on local markets. The
aim of this study was to determine the impact of the
instability of international cereal prices on the
Cameroon markets. Based on the estimate derived
from a threshold autoregressive model, using data
from the International Monetary Fund and the
Cameroon National Statistics Institute, a review was
undertaken of the cereal price indices for markets in
Yaoundé and Douala. This made it possible to
accept the hypothesis of a cointegrating relationship
between price indices for cereals on the international
THE IMPACT OF GLOBAL PRICE INSTABILITY
ON CAMEROON CEREAL MARKETS
market and the Cameroon markets. In the specific
case of Yaoundé, the asymmetric transmission
hypothesis was adopted to show that the cereal
price index tends to return more quickly to its
equilibrium level when cereal prices fall on the
international market. Conversely, if a shock drives
cereal prices up on the international market, the
cereal price index is less flexible and so does not
return to its equilibrium level, possibly leading to food
insecurity for households and their status as net
purchasers of food products.
KEY WORDS: ASYMMETRIC TRANSMISSION,
COINTEGRATING RELATIONSHIP, FOOD
INSECURITY, INSTABILITY, MODEL
AFFILIATIONS
1
Sub-regional Institute of Statistics and Applied Economics
(ISSEA), Yaoundé, Cameroon.
2
University of Yaoundé II, Faculty of Economic Sciences
and Management (FSEG), Yaoundé, Cameroon.
180
INTRODUCTION imply consumers failing to benefit from a price
cut and producers from a price increase, such that
The liberalisation of agricultural trade in 1994 these two groups would suffer from deteriorating
triggered an upsurge in the volume of food products economic welfare simultaneously as a result of
imported into Cameroon, thus increasing the price instability. The only groups that would stand
economy’s dependence on cereal imports. Most to gain from the price instability would be, for
studies point to comparative advantages being example, the intermediaries.
available as a result of opening up agricultural trade Even if the price transmission asymmetry hypothesis
(Nash and Mitchell, 2005; Maros and Will, 2008) but is validated, the meaning of this asymmetry is still in
one significant development is often overlooked: the question. Some studies show that price increases
impact of global food price instability on national are passed on faster than price reductions (Hahn,
markets. 1990; Bernard and Willett, 1996). Conversely, other
The international food markets are highly unstable. researchers concluded that the reverse is true
A country that is heavily dependent on these (Ward, 1982; Punyawadee et al., 1991). However,
markets is therefore vulnerable to price instability Ward (1982) showed that oligopolies may be
on the national markets. Several factors account reluctant to lose their market power, but that they
for spatial price transmission. This applies to the pass on price reductions faster than price increases
market power of certain firms or certain commercial (negative asymmetric transmission). In the light of
intermediaries, the costs of transactions, information the threshold autoregressive (TAR) model, Ntsama
and risk asymmetries, intervention policies and (2011) accepts the asymmetric transmission
consumer food preferences. The literature on hypothesis for Cameroon tomato market pairs.
agricultural price transmission is dominated by Accordingly, traders are apparently faster to pass
the debate on asymmetric price transmission. on tomato price increases than reductions. The
Two variants in asymmetric price transmission asymmetrical reactions to price shocks are reported
are singled out: positive asymmetric transmission to be attributed in this case to the transaction costs,
(price increases are passed on faster than price imperfect information, the market power of certain
reductions) and negative asymmetric transmission. operators and, more importantly, the fact that
The basic theory that asymmetric price transmission tomatoes are not easily storable and even prone
is the rule rather than the exception is put forward to perishing quickly.
by Peltzman (2000) in a study that covered 282 Another often cited reason for asymmetric price
products, including 120 types of farm produce. transmission in developing countries is the
However, the methodological problems involved information asymmetry between the ‘centre’ and
with the empirical tests may account for this finding, the ‘periphery’ (Meyer and Cramon-Taubadel, 2004).
because they lead to the systematic rejection of the Prices at the ‘centre’ in fact respond less to price
zero hypothesis of price transmission symmetry changes at the ‘periphery’, whereas prices at the
(Gauthier and Zapata, 2001). If such a hypothesis ‘periphery’ respond faster to those at the ‘centre’.
were invariably verified this would lead to a
shortcoming in the economic hypotheses, as The aim of this study was to determine the impact of
asymmetric transmission has always been regarded the instability of international cereal prices on cereal
as an exceptional case. The hypothesis would also markets in Yaoundé and Douala, Cameroon.

THE IMPACT OF GLOBAL PRICE INSTABILITY

ON CAMEROON CEREAL MARKETS 181
METHODOLOGY then described via threshold models. The error
correction term is described via a single threshold
Data collection autoregressive (TAR) model. The asymmetric
cointegrating relationship hypothesis is tested on the
The price series were collected on a monthly basis basis of the Enders and Granger procedures (1998).
for the 1994–2010 period and covered three cereals: The cointegrating relationship test is based on the
rice, wheat and maize1. The cereal prices were asymmetry hypothesis, whereby:
denominated in CFA francs per kilogram. They were
derived from the monthly Laspeyres cereal price (1)
indices on the international market and the Yaoundé
and Douala markets, with the base being set as
January 19942. The world price index (WPI) for
cereals on the world market was derived from cereal
price data issued by the International Monetary Fund When the coefficients 1 and 2 are negative, the
(IMF). The cereal price indices in Yaoundé (YPI) and cointegrating relationship between the price
Douala (DPI) were derived from the price series hypothesis is accepted. Two tests are performed:
gathered by the Cameroon National Statistical a t-max to test the hypothesis according to which
Institute (NSI). these two coefficients are negative, and an F-test
to test the hypothesis according to which these
Econometric model two coefficients are non-zero. When the test detects
A cointegrating relationship standard test was the presence of asymmetry in the cointegrating
performed to ascertain if there is any long-term relationship between the prices, it is then possible to
relationship between the price indices. The next estimate an error correction model where the price
step was to estimate an asymmetric error correction adjustment speed depends on the type of imbalance.
model, specified with a view to analysing the (2)
nonlinearity of the cointegrating relationship
between the price indices.
The hypothesis of a cointegrating relationship
between the price indices was tested using the
standard Engle and Granger procedures (1987)
(Table 1). If the residual is stationary, the price indices
are cointegrated, but the residual cannot be
stationary owing to the continuing shocks of
technological progress or demand, or intervention
policy shocks. Hence the difficulty in concluding
that the prices are cointegrated, even though
they may be. NOTES
Analysis of an asymmetric cointegrating relationship 1 The choice of three cereals is based on the percentage
calls for a cointegrating relationship with break they represent of food imports: 60% on average.
2 This choice is fully justified by the availability of the data
test to be performed in advance to determine and the adjacency of the two port cities to which the
endogenously a break date in the long-term imported products are transported.
relationship. The transmission asymmetry is

THE IMPACT OF GLOBAL PRICE INSTABILITY

ON CAMEROON CEREAL MARKETS 182
RESULTS
Cereal price trends on the world and local markets
showed some similarities, but domestic market
cereal prices were constantly lower than international index variation of 0.94 and 0.7% on the Yaoundé and
prices. The most significant peak is seen in 2008,
particularly with the food crises that affected most
African countries. Figure 1 shows the cereal trends
on domestic and world markets.
The hypothesis concerning the stationary nature of
the residuals is accepted for the Yaoundé and
Douala markets. A 1% variation in the price index for
cereals on the international markets results in a price
Douala markets, respectively. The conclusion was
that the price indices for cereals on the international
market and the domestic market were cointegrated.
The symmetric error correction model may be
specified. The findings are reported in Table 2.

TABLE 1: ENGLE–GRANGER TEST (STANDARD COINTEGRATING RELATIONSHIP TEST)

Series Coefficient t-statistic

Yaoundé Ơ0 90.63767*** 14.9
Ơ1 0.94713*** 14.46
Douala Ơ0 126.2845*** 21.17
Ơ1 0.70591*** 10.98

FIGURE 1: CEREAL PRICE TRENDS ON THE WORLD AND LOCAL MARKETS (CFA FRANC/kg)

520

420

320

220

120

20
Jan 94

Jan 95

Jan 96
Jul 94

Jan 98

Jan 00

Jan 01
Jul 95

Jul 96
Jan 97

Jan 99

Jan 02

Jan 03
Jul 97

Jan 04
Jul 98

Jan 05
Jul 99

Jul 00

Jul 01

Jul 02

Jul 03

Jan 06

Jan 08

Jan 09

Jan 10
Jul 04

Jul 05

Jul 06
Jan 07
Jul 07

Jul 08

Jul 09

Jul 10

International maize price International rice price International wheat price

Domestic wheat price Domestic rice price Domestic maize price

THE IMPACT OF GLOBAL PRICE INSTABILITY

ON CAMEROON CEREAL MARKETS 183
The symmetric error correction model is valid
because the spring-back effect ƪ is negative and
significant. The price indices for cereals on the
Yaoundé and Douala markets adjust to the price
index for cereals on the international market. When
the adjustment is symmetric, domestic prices match
international ones at the rate of 0.069 in Yaoundé
and 0.1709 in Douala. This disparity may be
attributed to the distance between the city of
Yaoundé and Douala port. The asymmetric price
transmission hypothesis was verified on the basis of
the Enders and Granger test (1998) (Table 3).
The tabulated t-max statistic shows that the
coefficients Ư1 and Ư2 are significantly negative at the
5% threshold on the two markets. Similarly, the
F-test also revealed that these two coefficients were
significantly non-zero for the two markets. The
cointegrating relationship hypothesis was confirmed
on the two markets. However, the Wald test makes it
possible to reject the hypothesis of equality of the
two coefficients uniquely on the Yaoundé markets:
the price transmission was asymmetric. An
asymmetric error correction model may therefore be
specified. Conversely, in the case of the Douala
markets, the asymmetric cointegrating relationship
hypothesis was rejected. The price transmission is
symmetric. Rising and falling prices were passed
through at the same rate. The asymmetric error
correction model was therefore not specified in
this case.

TABLE 2: STANDARD ERROR CORRECTION MODEL

Series Coefficient t-statistic

Yaoundé ƪ –0.069*** –2.779
Ơ0 –0.076 –0.745
Ơ1 –0.206** –1.989
Douala ƪ –0.1709*** –3.9751
Ơ0 0.0616 0.6197
Ơ1 0.0938 0.9386

TABLE 3: ESTIMATE OF THE TAR MODEL

Series Coefficient t-statistic

Yaoundé Ư1 –0.181 –4.043
Ư2 –0.068 –1.753
Ư1= Ư2 Wald = 3.6825, Prob = 0.05642, F = 7.1222
Douala Ư1 –0.251 –4.72
Ư2 –0.206 –3.70
Ư1 = Ư2 Wald = 0.340, Prob= 0.5602, F = 17.98

THE IMPACT OF GLOBAL PRICE INSTABILITY

ON CAMEROON CEREAL MARKETS 184
 TABLE 4: PRICE ADJUSTMENT SPEED IN THE EVENT OF ASYMMETRY: YAOUNDÉ MARKETS
Coefficient
Ʀ 1.54
ƪ+ –0.030
ƪ– –0.133
When prices on the Yaoundé markets were below
their equilibrium level (upward price shock), the
pass-through rate was 0.03; otherwise the rate was
0.133 (Table 4). Price movements were therefore
rigid downwards, but flexible upwards. The return
to equilibrium was therefore faster when the price
index for cereals on the local market was lower
than its equilibrium level.
DISCUSSION AND CONCLUSION
The outcomes confirmed the asymmetric
transmission of prices. Higher cereal prices on
global markets are reflected more quickly than
reductions on the Yaoundé markets. Variations in
international cereal prices that passed through to
the Cameroon markets resulted in an increase in
food prices. Price instability resulted in the instability
of purchasing power (if incomes fail to adjust), which
adversely affected the availability of food products,
to the detriment of both consumers and producers.
The Temple and Dury (2003) analysis confirmed this
adverse side-effect of price instability on food
security in Cameroon. However, while price
instability may be endogenous to local markets,
as revealed in the analysis, this study showed that
the instability may also be imported as a result of
tariff cuts, which distort prices of agricultural
commodities traded in international markets.
Economies able to absorb the price shocks could
derive real benefit from opening up markets, but this
THE IMPACT OF GLOBAL PRICE INSTABILITY
ON CAMEROON CEREAL MARKETS
t-statistic
2.111
–0.890
–3.192
does not apply to ‘small economies’ such as
Cameroon. Accordingly, food security has to
form part of the general growth and agricultural
development policies in developing countries that
are uncompetitive on the international markets.
Hence the need to decouple Cameroon’s urban
markets from the highly unstable international
markets. This can be achieved through the direct
intervention of the public authorities in the short and
medium term in order to stabilise locally produced
food, or by boosting national food supply in the
long term.
COMMUNICATION STRATEGY
AND IMPACT
The paper was presented during several symposiums
(five social science research seminars in Dijon on
8 and 9 December 2011 and an international
symposium organised by Senegal’s national science
and technology agency in Dakar on 2 November
2012). Several conferences are scheduled to be held
in various universities, with invitations being sent to
policymakers from the Ministries of Agriculture and
Rural Development. The impact of the study involves
making the authorities aware of the need to steer
food policy in another direction in the long term,
and revitalising the agricultural sector by alerting
stakeholders and policymakers to the need to
boost national food production.
185
ACKNOWLEDGEMENTS
Many thanks to Michel Harvard from CIRAD,
Dr Cyprien Awono and Pr. Fondo Sikod for
their advice and proofreading.
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