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148 terms

Absolute cost advantage

At any given level of quantity produced, the incumbent firm has lower costs of production than the new firm. This is due to extra knowledge gained over time, endowment of natural rights, possession of patents, cost of capital to new firms and many other factors.

Arbitrage

Taking advantage of a price differential. The two most common types of arbitrage related to food security are spatial arbitrage (where commodities are moved from areas or markets with lower prices to areas or markets with higher prices and the difference exceeds the transfer costs) and temporal arbitrage (where commodities are obtained, stored and sold at a point in the future when prices are expected to be higher and the difference exceeds the costs associated with the temporal transfer.

Assembly market

A market where smaller quantities of a commodity are accumulated or aggregated usually from different farmers and small scale traders. Assembly markets facilitate marketing and the movement of commodities as well as reduce the costs of marketing. They can also enable sellers of smaller surpluses from more remote locations to reach distant buyers.

Barriers to entry

The degree with which firms can influence market prices so that they earn profits which are large but at the same time restrict the potential entry of rival firms into the industry. The major categories of barriers to entry are absolute cost advantage and economies of scale.

Border point

The exact place (often, but not always, a market location), within the Reporting Country where the trade flow is observed.

Budget share

The portion (percentage) of the household budget spent on a given good (maize), service or grouped goods and services (food). This is essentially the same thing as expenditure shares.

Capital constraints

The difficulty to obtain capital to start a business.

Capital cost

Cost of purchasing or renting capital goods.

Collective action

The process of farmers jointly acting as a group in production, processing or marketing activities.

Collusion

1. When rival companies and traders cooperate, overtly or covertly, for their mutual benefit.

2. The act in which traders jointly determine the prices at which they buy agricultural products from farmers.

Commission

A percentage of money that a trader or agent charges for conducting a transaction on behalf of a seller or buyer.

Commodity

Something tangible, that has value and can be exchanged. Commodities include food and cash crops, livestock, non‐food consumer items and even labor.

Commodity availability

Monitors the availability of a product in a particular market to identify abundance, stability, or scarcity

Commodity balance

The balance of staple foods.

Commodity flow

The movement of commodities through space, generally from surplus to deficit areas.

Competition

A market structure in which there are many sellers of a product.

Complementary good

Also, Complement

A commodity which is consumed in combination with another commodity. When demand for one commodity rises, demand for the other will rise as well.

Conduct

Also, Market conduct

The patterns of behavior that traders follow and strategies that they employ in adjusting to the markets in which they sell or buy.

Conglomerate conduct

The act of businesses merging together and doing businesses that may or may not be related.

Consumer basket

A typical household’s market (expenditure) basket of goods, services, fees, etc. It is used for tracking the prices of consumer goods and services and the overall cost of living. The basket may be comprised of the actual quantities of consumption goods or services acquired or used by households in some period. Sometimes, a consumer basket can also be made up from hypothetical quantities created.

Consumer price index (CPI)

An index of consumer prices which measures the change in prices associated with a typical market basket of goods and services over time. The CPI expresses current prices in terms of prices during the same period in a previous year (base or reference year), to show inflation or changes in purchasing power.

Consumption season

Also, Marketing season

The period of time during which agricultural output is sold, typically extending from one harvest period to the next.

Contract sale

A transaction that specifies a price of a commodity and the date of delivery at a future period of time.

Core CPI

A price index where certain items are excluded from the CPI basket on the basis that their prices are highly volatile, subject to temporary influences or are affected by government policies. The index is used to calculate “core inflation” and reflects the underlying inflationary pressures in the economy.

See Consumer Price Index (CPI).

Cost insurance freight (CIF)

Pricing or valuation of a good, including all of the costs (known as transfer costs) of delivering a good to the point of consumption. It may be contrasted with the FOB (or free on board) where the transfer costs are excluded. Imports are often valued at CIF prices and exports at FOB prices.

Cost of living index

An index that measures between two periods the change in the minimum expenditures that would be incurred by a consumer, in order to maintain a given level of standard of living or welfare, assuming that his/her preferences or tastes remain unchanged.

Cross border trade (XBT)

The movement of commodities from one country to a neighboring country, and is usually measured in terms of magnitude (e.g., metric tons) and direction (from country A to country B).

Cross price elasticity of demand

The relationship between two commodities which can be substituted for one another (see also to elasticity of demand).

See Elasticity of Demand.

Deficit areas

Areas that either do not produce or produce an insufficient amount of a given commodity to meet local demand (derived or final demand).

Demand curve

The relationship between the price of a commodity and the quantity that buyers are willing or able to buy, with all other things being equal. For most commodities, there is an inverse relationship between price and quantity demanded: a rise in price is associated with a decline in quantity demanded.

Derived demand

Demand for a commodity to be used as an input to another productive activity (e.g., the demand for maize as feed for poultry production).

Destination

The country where goods were ultimately delivered.

Dynamic analysis of margins

Analysis of changes in marketing margins over time.

Economies of scale (EOS)

The reduction in costs of producing an extra unit of output. Usually related to the minimum efficient level of output at which a firm can produce efficiently relative to market size

Effective demand

The desire to buy together with the ability pay for as good or service. Those who have a desire to buy but cannot pay the price or cost are said to have limited or no effective demand.

Effective exchange rate (EER)

The actual rate at which one unit of foreign currency is exchanged for local currency.

Elastic demand

A commodity for which the percentage changes in demand is proportionately greater than the percentage change in price. For example a one percent change in the price of the good or service leads to a greater than one percent change in the quantity demanded.

Elastic supply

A commodity for which the percentage changes in supply is proportionately greater than the percentage change in price. For example a one percent change in the price of the good or service leads to a greater than one percent change in the quantity supplied.

Elasticity

Measure of a percentage change of one thing relative to a percentage change in another. For example, the price elasticity of demand is the percentage change in quantity demanded relative to the percentage change in the price.

Elasticity of demand

The percentage change in quantity demanded relative to the percentage change in the price.

• Own price elasticity: When the change in quantity demanded is related to the price of the commodity.

• Cross price elasticity: When the change in quantity demanded is related to the price of another commodity.

Elasticity of supply

The percentage change in the quantity supplied relative to a percentage change in the price of a commodity.

Exchange efficiency

A situation in which all benefits from trade have been exhausted and it is not possible to do further exchange without reducing the happiness of another agent.

Echange rate

The rate at which one currency can be exchanged for another.

Exchange terms

The terms under which goods and services are exchanged in transaction.

Exclusionary pricing

Also, Predatory pricing

Occurs when one firm lowers and maintains its price below costs until other efficient firms exit the market. Predatory ricing eliminates competition (results into monopoly power).

Expectations

What a market actor believes will occur at some point in the future, and that time frame is usually defined. For example, the price a seller believes they will receive three months in the future.

Expenditure shares

The portion of a household’s expenditures allocated to a particular good, service or group of goods and services. This is essentially the same as budget shares.

Export parity price (XPP)

The monetary value of a product sold at a specific location in a foreign country, but valued from a specific location in the exporting country.

Farm gate

At or near the farm or location of production. Usually, but not always, the place where a commodity is first exchanged. Farmers can also bring their produce to assembly, wholesale and even retail markets.

Farm gate price

The price that the farmer or producer receives at the farm or location of production. It is the price of the product available at the farm, excluding any marketing costs or transport and delivery charges.

Food balance sheet (FBS)

Presents a comprehensive picture of the pattern of a country's food supply during a specified reference period. A food balance sheet shows the sources of supply and utilization for each food item.

Food item

Each primary commodity and a number of processed commodities potentially available for human consumption.

Food price index

A price index where only food items appearing in the consumer basket are included in the calculation of the index.

Foreign exchange premium (FXP)

The percentage that the Official Exchange Rate (OER) overvalues the local currency.

Formal trade

Typically large quantities transported by road, rail or ship which are inspected, taxed and reported in official statistics. Formal trade is typical legal trade.

Free on board (FOB)

The price of a commodity loaded on board a carrier at the port of exit.

Hedgers

People who buy contracts to sell the stocks/commodities in the future at a price agreed upon today, thus protecting themselves from price fluctuations.

Imperfect substitute

Also, Imperfect commodity

A commodity that consumers choose to consume in place of another preferred commodity when the price of the preferred commodity rises. However, the imperfect substitute does not satisfy a need or want to the full extent of the preferred commodity, so there is a less than one for one substitution.

Import parity price (IPP)

The monetary value of a unit of product bought from a foreign country, valued at a geographic location of interest in the importing country.

Incentive

Something that incites an action or provides a motive such as potential profits.

Income elasticity of demand

The percentage change in the quantity of a good demanded given a one percent change in income.

Index reference period

The period for which the value of the index is set at 100. This is the same as the base year.

Industrial organization

The field of economics that studies the behavior of firms, the structure of markets, their interactions and affect on the performance of markets.

Inelastic

A commodity for which the percentage change in quantity supplied (demanded) is less than the percentage change in price.

Inflation

An overall rise in the prices of good and services in an economy. There is an inverse relationship between the prices of goods and services and the value of money in an economy: other things being equal, as prices rise over time, a given amount of money will be able to purchase a fewer and fewer goods and services.

Informal market

Also, Informal trade

Small‐scale transactions of a few bags or less of a commodity, which are exchanged outside of official channels and are typically undocumented, unlicensed and unregistered. Informal cross border transactions are often carried across the border on bicycles or headloaded. While each transaction may be small, the total or aggregate volume and value of these transactions can be quite significant. This term is also often used to refer to illegal trade, although, these two types of trade are not necessarily equivalent. This has lead to some confusion in the literature. Therefore, it is important to define this term when it is used.

Innovation

Also, Progressiveness

The process of devising better ways of production, processing and marketing, usually through research and development that increases the value of goods and services and avoids wastage of productive resources.

Inter-spatial transfer costs

The monetary payment made as a marketing cost to transport a product from one geographic area to another for sale.

Inter-temporal transfer costs

The total monetary payment made paid as a marketing cost to store a product for sale at a later date.

Joint profit maximization

A behavior in which traders decide to cooperate in order to charge higher prices so as to obtain more profits. Examples are cartels (e.g. OPEC) and price leadership‐usually the large producers.

Laspeyres price index

An index that measures the change in the value of the basket of goods and services actually purchased in the earlier of the two periods.

Law of one price (LOOP)

A situation where the unit price of a product is the same in all locations and time points, after adjusting for transfer costs.

Logistics

The management of the flow (distribution) of products, information, resources or people between the point of origin and the point of consumption with an aim to meet the requirements of consumers.

Market

Where buyers and sellers come together to trade. Markets can be viewed as social arrangements that allow buyers and sellers to discover information or carry out a voluntary exchange of goods or services. Markets are normally physical locations, but not always. Transactions can occur on the phone, over the internet, through intermediaries, etc. Commodities (e.g., crops and food), livestock and labor can be exchanged through markets.

Market actor

Someone who is active in the market such as traders, wholesalers, transporters, storeowners, consumers, etc. A market actor is equivalent to market participant.

Market calendar

Depicts the availability of a commodity or a group of commodities in the market over the calendar year.

Market catchments

The areas from which commodities or labor is sourced and brought into a particular market or the market system as a whole. These areas usually include key production zones that have significant marketable surpluses.

Market centers

Physical locations where buyers and sellers meet and exchange.

Market chain

A group of people or organizations that direct the flow of commodities from production to consumers. Market chains are usually vertical.

Market conduct

Refers to the patterns of behavior that traders and other market participants adopt to affect or adjust to the markets in which they sell or buy.

Market efficiency

A situation where price differences for a specific product that are compared in different places or points in time are equal to the transfer costs.

Market failure

Result when the price of a good or service does not reflect the true costs of producing and consuming the good or service. The existence of a market failure implies some inefficiency in the market. A market failure is not the same as a market shortfall.

Market integration

The ease at which prices are transmitted from one market to another and is usually measured by the degree of correlation between prices in different markets. Generally, a high correlation implies more integration. Integration implies a relationship, but not necessarily causality.

Market margin

The difference between the price paid by consumers and that obtained by producers. Margins can be calculated all along the market chain and each margin reflects the value added at that level of the market chain.

Market networks

Describes commodity flows and points of exchange from production to the final consumer. The emphasis of market networks is on spatial and exchange relationships.

Market performance

Refers to the extent to which markets result in outcomes that are deemed good or preferred by society. Market performance refers to how well the market fulfills certain social and private objectives.

Market shortfall

1. With respect to market availability: Refers to a food gap where requirements exceed supply.

2. With respect to a particular market: Where there is a scarcity of a commodity and demand exceeds supply.

Market structure

Consists of the relatively stable features of the market that influence the rivalry among the buyers and sellers operating in a market. May refer to the number and size distribution of buyers and sellers, the degree of product differentiation and the ease of entry of new firms into an industry.

Market system

Includes the whole commodity distribution system from production to consumption. A market system describes key linkages between the different stages in a commodity’s distribution such as producer‐wholesaler, wholesaler‐ food processor or storeowner‐consumer. It also describes the spatial and functional relationships between markets and market actors. A market system is spread over a geographic area, which can be small such as just a few villages that exchange among themselves, or very large and spread across a country, group of countries or over the entire world.

Marketable surplus

The excess product which is made available after meeting producer needs (seed, home consumption, animal feed, in kind labor payments and transfers). It is important to note that many producers sell product without fulfilling their complete food requirements: they rely on the sale of product for cash income and resort to the market to access a portion of their food requirements.

Marketing margin

The difference between the prices observed at different points in the supply chain when quantities are expressed in comparable its of a commodity.

Marketing margin share

The difference between two prices at different levels of the market, expressed as a ratio. For example, the difference between the retail price and producer price divided by the retail price. Therefore, marketing margin share can also be thought of as the marketing margin expressed as a ratio. Marketing margin shares can be calculated all along the market chain, and each margin reflects the proportion of the value added at that level of the market chain.

Marketing season

The period of time during which agricultural output is sold, typically extending from one harvest period to the next. It is the same as the consumption season.

Minimum efficient firm size

The level of output which corresponds to the lowest cost of producing a product relative to the quantity demanded in the market.

Monopoly

A market with only one seller or controlled by one seller.

Monopsony

A market with only one buyer or controlled by one buyer.

Net marketing margin

The price spread minus the costs associated with either moving a commodity from one location to another or storing the commodity over time. A measure used to assess the price arbitrage incentives.

Niche market

A market associated with a special attribute of a product.

Nominal prices

Prices that have not been adjusted for inflation. The nominal price is equal to the money that is paid for a unit of a good or service in the market, at the shop, etc.

Official trade

Trade that has been registered or accounted for. It is often measured as well.

Oligopoly

A market with only a few sellers or controlled by only a few sellers.

Oligopsony

A market with only a few buyers or controlled by only a few buyers.

Own price elasticity

Percentage change in quantity demanded of a commodity related to the percentage change in the price of that commodity.

Parity

Also, Parity pricing or Price parity

Making prices of a commodity in one location equivalent to the same commodity in another location, usually in a different country. It adjusts for marketing costs involved in transferring and transforming the product between two locations.

Perfect competition

A market situation in which it is assumed that there are many sellers and buyers and the market determines the price of food commodities. Both buyers and sellers become price takers and not price makers.

Performance

The extent to which markets or traders do things that society expects – do they operate efficiently, provide a reliable source of food, supply food at reasonable prices, etc.

Price

The cost or value of something expressed in monetary terms.

Price differential

A spatial or temporal difference in prices.

See Spatial arbitrage and Seasonal arbitrage.

Price discrimination

The act of charging consumers different prices for the same product.

Price elasticity

The percentage change in the quantity demanded (supplied) given a percentage change in the price of a commodity.

Price reference period

The period to which prices in other periods are compared. This is used when calculating the CPI.

Price relative

The ratio of the price of an individual product in one period to the price of that same product in the reference period.

Price spread

The difference between two prices.

Price transmission rate

The degree of ease with which price information is relayed and communicated among different markets and market participants over geographic space and time.

Pricing standard operating procedure

Determining price by agreed formula, standard mark‐up or manufacturer recommended store prices.

Processing conversion factor (PCF)

The ratio of the quantity of a processed product to the quantity of the unprocessed product.

Product differentiation

The act of slightly changing a product so that you can convince customers that the product is better and charge a higher price. (E.g. one kilogram of maize flour in a nice paper bag compared to one kilogram maize flour scoped from a sisal bag). The maize flour can be the same quality but one is sold for a higher price.

Production efficiency

The process of producing a commodity at the lowest average cost. There is no wasting of scarce resources that are used to produce the good. This would involve farmers adopting methods that maximizing output per unit on inputs used.

Profit margin

The difference between the cost and the selling price of a product or service.

Public relations

How firms and business organizations treat and interact with their customers.

Purchasing power

The value of money, as measured by the quantity and quality of products and services it can buy. The amount of goods or services that one unit of money can buy.

Real prices

Prices that have been adjusted for inflation. Real prices hold the value of currency constant, and allow you to compare the exchange value of a good or service in different time periods.

Reference market

A market that provides good information and orientation for food security analysis. Reference markets would include markets in areas characterized by food insecurity and vulnerability or key markets that influence the performance of other markets directly tied to food insecure and vulnerable populations.

Relative prices

The exchange value of one good or service for another (i.e., the price of one good in terms of another). Usually measured in terms of the price ratio of the two goods.

Rents to arbitrage

The difference between the net marketing margin and the transfer costs accrued when transferring the product from one market to another or one point in time to another.

Reporting country

Where the trade flow was observed/enumerated, often at a specific Border Point.

Research & innovation

The process of coming up with new and efficient ways of utilizing scares resources to produce goods and services.

Retail market

A market where commodities are largely sold to end users, especially consumers. Per transaction volumes tend to be smaller, for example per kg or small bowl.

Retailers

Traders, merchants or storeowners who tend to sell to consumers and other end users. Retailers usually sell in smaller volumes than wholesalers; their average transaction size is smaller.

Seasonal arbitrage

Also, Temporal arbitrage

Taking advantage of the price differential over time, usually over the agricultural season. The differential must exceed all costs associated with handling and storing the commodity.

Source

The country where goods originated.

Spatial arbitrage

Taking advantage of the price differential across locations or markets. The differential must exceed all costs in moving the commodity from one location or market to another. A simple measure of potential spatial arbitrage is the difference between the prices observed for the same product in two different locations.

Speculators

People who buy contracts to buy and/or sell commodities/stocks for profit without physically moving or storing the commodities/stocks.

Spot markets

Physical markets in which farmers and traders converge to buy and sell products at a given period of time.

Standard of living

A level of material comfort as measured by the goods, services, and luxuries available to an individual, group, or nation. The standard of living can also capture broader aspects of well‐being or the quality of life such as health, education, etc.

Static analysis of margins

An analysis of the composition/structure of marketing margins at any one point in time.

Structure

refers to the number and size distribution of buyers and sellers, the degree of product differentiation and the ease of entry of new firms into an industry.

Structure‐Conduct‐Performance (SCP)

A framework or an approach to market analysis that is based on the premise that the structure of a market influences the conduct of its participants (buyers, sellers and other participants), which, in turn, influences the performance of markets.

Substitute good

Also, Substitute commodity

A commodity that can replace another in consumption or production such as millet for sorghum. When the price of one commodity rises, consumers will decrease their consumption of it and increase consumption of the substitute commodity. Wild and gathered products can be substitutes.

Supply chain

The series of production, transformation and transfer activities/functions that start with raw material and natural resources and ultimately provide a product for sale to a consumer.

Supply chain level

A segment of the supply chain, comprising of a specific activity or a small set of specific activities (e.g. packaging and storage).

Supply curve

The relationship between the price of a commodity and the quantity that sellers are willing or able to sell, with all other things being equal. For most commodities, there is a direct relationship between price and quantity supplied: a rise in price is associated with a rise in quantity supplied.

Surplus areas

Areas that produce in excess of that demanded locally and therefore can provision other areas.

Technological progress

A process of coming up with better technologies for producing goods and services. Refers to the extent to which farmers and other food system or sub‐sector participants adapt improved technical, management, and institutional innovations which enhance productivity and profitability. In the marketing channel, this could involve improvements in storage, packaging, and reduction in post‐harvest loses.

Temporal arbitrage

See Seasonal Arbitrage.

Terms of trade (ToT)

The rate at which one good or service can be exchanged for another and is typically expressed as a ratio.

Transaction costs

The costs associated with conducting a transaction. This includes all time, effort, and cash expenses other than an item’s price, such as gathering information about the market and market opportunities, enforcing agreements, formal and informal commissions and fees, and physically moving the product from seller to buyer.

Unit elastic

A commodity for which the percentage change in the quantity supplied or demanded is equal to the percentage change in price.