Analysis of Price Volatility and Implications for Price Stabilization Policies in Mozambique

Abstract

High food price instability is one of the major risks facing agricultural households from developing countries. Resulting from agronomic factors as well as the historically low levels of world grain stocks and climate change, increased food price volatility has attracted renewed interest among policy experts in identifying appropriate policy instruments to counter its effects. This paper applies the GARCH model to data from twelve maize markets in Mozambique to estimate price seasonality and volatility. The results reveal the presence of seasonality, and high volatility. There is scope for improving price stability through the use of both market and non-market based price stabilization interventions that encourage investments in market infrastructure such as roads, warehouses and a market information system; institutions such as warehouse receipt system, credit and insurance; maintaining a strategic reserve and reduced tariffs and food-for-work programmes.

Key words: Price volatility, Maize, GARCH, Mozambique