Rainfall Shocks, Markets, and Food Crises: Evidence from the Sahel - Working Paper 157

December 12, 2008

Post-doctoral fellow Jenny Aker assesses the impact of weather shocks on grain markets in Niger. Droughts and crop failures occurred in Niger in both 2000 and 2004, but only the 2004 drought resulted in a severe food crisis. Many were quick to cite market failure and hoarding as causes of the crisis, but other factors such as the spatial distribution of drought, temporary trade restrictions, and inadequate incentives to import from Nigeria may have played a larger role.

Grain markets in Niger are fairly well integrated, with higher degrees of integration during drought years. Domestic grain markets are strongly integrated with regional markets, particularly those in Benin and Nigeria. Exploiting the exogeneity of extreme rainfall in a difference-in-differences framework supports these findings: Aker finds that drought reduces grain price dispersion across markets, with a stronger impact as a higher percentage of markets are affected by drought, as was the case in 2004–05.

The evidence in this paper should not be taken to imply that grain markets worked perfectly in Niger during the 2005 food crisis, although they were partially integrated. The evidence does suggest, however, that factors other than market failure and trader hoarding appear to be responsible for the grain price spike and food crisis in 2005.

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