Market Analysis and Emergency Needs Assessment

Summary of background technical paper¹

Rice bowls in rural market

An issues paper on market analysis and emergency needs assessment was prepared as a background document for the WFP Emergency Needs Assessment (ENA) meeting, held in October 2003 in Rome (see news and views section). The paper reviewed the role and methods of market analysis in the ENA process. It begins with the premise that if emergency interventions are to pursue efficiency objectives with an eye to minimising costs and collateral economic damage, then market analysis must be an integral part of the process. However, market analysis generally requires time-series data for comparison, which, in turn, requires that market information systems (MIS) have institutional stability and continuity. Thus, MIS may collapse in a complex emergency and with it, the options for sound price analysis. Feasibility and data constraints in the early stages of chaotic and rapid onset emergencies do limit options for market analysis. The options are much greater for predictable or slow onset emergencies.

The paper sets out a number of challenges. For example, in food security analysis, rough estimates used for indicative resource planning and mobilisation at the early stages of an emergency, must reflect some expectations of future price developments. Whatever approach is used (e.g. time series price modelling or partial equilibrium models), prediction of future outcomes is a data hungry and error-prone business.

There are also issues around identifying the role of markets in food insecurity. Famine and prolonged local price hikes exist because markets fail, or are weak and poorly integrated. Experienced field assessment teams can easily identify markets that don't work. It is easy enough to speak to a few traders and consumers, ask about flows from and to neighbouring markets, and examine the marketing policies and structures. It is possible to establish a few rules of thumb for assessing food markets. For example, if the price of commodity X in a deficit market Ais more than 25 percent higher than it is in the nearest surplus market B, allowing for transport costs between markets, this is an indication that the market is poorly integrated. Problems arise when there is a need to justify an intervention on the basis of quantifiable and testable facts. Can a large-scale intervention to subsidise trucking of food from B to A, or to replace the market entirely, be justified on this type of rule of thumb analysis, or is there a need for a more reliable and transparent method?

AMIS can also provide critical information for ENA adjustments during an intervention. Price indices can show whether recovery has taken place and some kind of normality has been achieved. Food markets can also show whether the food aid response is working. In particular, the depressed market price and large outflows of food aid commodities can be indicative of faulty targeting or commodity choice, while persistent price hikes for staple commodities in a target area are likely indications of an inadequate response. However, the problem once again is that simple rules of thumb may be misleading. There are numerous reasons for resale of food aid commodities, including pressing demand for non-food commodities. Ideally, analysis of the market impact of food aid would be based on a long time series, stretching back to before programme intervention.

There are also issues around commercial trade. During an intervention, market analysis can serve to measure the desired and unintended consequences of food aid interventions. The potential economic disincentives of food aid to trade, production and labour are well known. If economic efficiency is on the ENA agenda, the likely impact of food aid must be assessed. Well-timed distributions with careful targeting increase demand, without necessarily replacing commercial purchases. Getting the right balance of local purchase, triangular transactions and international imports can help to ensure that producers are not discouraged. Finally, sub-contracting transport, storage and handling to the private trade can actually strengthen trade. More can often be done to increase the market sensitivity of interventions.

The paper concludes with two main points. First, a large number of analytical tools exist which could fill the basic analytical requirements of market and price analysis for ENA. These tools have been developed in data-abundant research environments with the benefit of large panel datasets. The challenge for developing robust and testable ENA tools is not the lack of methods, but the lack of data, especially in the chaotic circumstances that often surround emergency operations. What is needed is a set of tools that fall somewhere between the current reality (somewhat unfairly characterised as 'seat of the pants' and rule of thumb), and sophisticated data-hungry models.

Secondly, some element of prediction is always needed for the initial ENA. As these tools will always churn out errors, it is probably not worth investing too much in the initial estimates. Rather, there is a need to find ways of making errors more explicit in the first estimates. Over time, the ENA must be refined continuously, based on evolutions in the market as new household food security, market and utilisation data become available. From a first rough estimate of need, it is possible to refine the spatial and temporal accuracy of the ENA and identify intervention modalities that are sensitive to market conditions. As the information base improves, it is important to ensure that programme designs are flexible enough to allow adjustment.

For further information, contact Ben Watkins, WFP, email: Ben.Watkins@wfp.org

¹Watkins, B (2003). Market Analysis and Emergency Needs Assessment: A Review of the Issues. Background paper for WFP technical group meeting on ENA issues in Rome, 28th-30th October 2003.