SERA Policy Research Brief: Drivers of Maize Prices in Tanzania

Maize is the most important food crop in Tanzania. It accounts for nearly 50 percent of total calories in the diet and 40 percent of cropped area. Maize production is concentrated in the Southern Highland regions of Iringa, Mbeya, Ruvuma and Rukwa; but occurs in all regions and by an estimated 85 percent of farmers. This SERA Research Brief summarizes a study that quantifies the domestic and external drivers of Tanzanian maize prices. The objectives of the study were to better understand the impacts of trade policies, as well as the influence of other domestic external factors that drive maize prices.

An econometric error correction model (described in Box 1) was estimated to determine the price relationship between 18 markets in Tanzania (Figure 1) and regional and global prices using monthly data from July 2002 to July 2014. The study extends the literature on price transmission in several ways. First, it considers several external markets as drivers of Tanzanian maize prices. Second, it separates long-run co-movement from short-term price variability. Third, it measures the influence of harvest cycles, weather anomalies, export bans, inflation and fuel prices.

The study finds that long-run Tanzanian maize prices are determined by external markets (proxied by Nairobi and other regional and global prices), but in the short run price movements are driven by domestic factors. The export bans delay the adjustment of domestic maize prices towards long-run equilibrium and lowers domestic maize prices. The short-run influences of weather shocks on domestic prices are more pronounced during periods in which an export ban is imposed. Harvest cycles have a strong influence on maize prices, signalling the importance of improving storage and transportation in order to reduce seasonal price variations which currently are 40 percent from trough to peak. Inflation and fuel prices were also found to influence maize prices.

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