Determinants of food price volatility in Cameroon

The analysis of food price volatility is really important in economics. Understanding why do prices evolve as they do and explaining what are the sources of price variations is a central question for economies worldwide, and especially for African economies. Indeed, food price volatility often appears as one of the fundamental characteristics of agricultural markets. Thus, without such information, forecasting price evolutions is very difficult and providing adequate recommendations to policy-makers becomes a challenge. The objective of this chapter is, on the one hand, to explain the various theoretical views of the determinants of food price volatility in the economic literature and, on the other hand, to measure food price volatility in Cameroon as well as to find out factors that influence this volatility. Specifically, the chapter analyses the trajectory of food price series and identifies the determinants of their fluctuations by using an ARMA, an ARMA-X, a GARCH, and a GARCH-X model. Unlike previous studies, we assume that food price volatility on Cameroonian markets is the result of domestic/local factors as well as external factors coming from the world market. Two main results have been found. First, although there is a general tendency to assert that food price volatility has increased over time, we were unable to confirm this hypothesis. One potential explanation relies on the fact that imported cereals have many potential substitutes in Cameroon. Second, food price volatility in Cameroon is mostly determined by local/domestic factors such as price volatility of other agricultural and non-agricultural products, and not by external factors such as price volatility of crude oil or imported cereals, as well as by specific political events to this country, but not by the 2008 food crisis; suggesting the existence of a low price transmission between international and Cameroonian markets. Consequently, the three recommendations aiming at policy-makers to reduce the impacts of food price volatility in Cameroon are the development and improvement of existing development programs or the implementation of specific projects supporting local food production that are substitute to imported food commodities such as local cereals or roots and tubers; the control of fuel price fluctuations in the country and the improvement of transport infrastructure; and the following of price behavior patterns of 3 commodities out of 7 and 3 markets out of 5 to have a good understanding on what is going on in Cameroon regarding food price fluctuations and volatility.