The Determinants of Livestock Prices in Niger

Not only does livestock makes an important contribution to rural incomes and export earnings in the Sahel, it is also kept as insurance against weather risk. Fluctuations in livestock prices can therefore trigger food entitlement failures. Using monthly price data from Niger, we show that livestock prices respond to droughts and pasture availability. They are also exposed to aggregate shifts in export revenues and meat demand that affect Niger and its southern neighbor, Nigeria. These shifts add an important element of risk to the livelihood of Sahelian farmers and pastoralists. Famine early warning systems should keep an eye not only on weather shocks but also on macroeconomic conditions and other factors affecting the livestock economy. _ _____________ † Assistant Professor, Department of Economics, Stanford University, Stanford, CA 94305-6072, USA. †† Agricultural Economist, International Livestock Research Institute, P.O.Box 5689, Addis Ababa, Ethiopia. The Sahelian climate is marked by highly variable rainfall over time and space. These features make rainfed agriculture highly risky but produce abundant seasonal pasture. Sahelian farmers and pastoralists1 have long developed production techniques and livestock species that make extensive livestock raising not only feasible but also economically attractive (Sandford (1983)). The traditional importance of livestock as a source of rural incomes and export earnings in the Sahel has been further reinforced by rapid urbanization along the West African coast and by the rising consumption of meat in the region (e.g., Staatz (1979), Shapiro (1979)). Livestock, however, is more than a productive investment. One of the strategies Sahelian farmers rely on to protect themselves against weather risk in crop production is the accumulation of livestock as a form of precautionary savings (e.g., Binswanger and McIntire (1987), Reardon, Matlon and Delgado (1988), Ellsworth and Shapiro (1989), Czukas, Fafchamps and Udry (1995)).2 To be effective, this strategy requires livestock prices to be relatively stable. Numerous famines have indeed been traced to entitlement failures that have as proximate cause a collapse in the livestock-grain terms of trade (e.g., Sen (1981), Reardon, Matlon and Delgado (1988), Webb, Braun and Yohannes (1992)). We show in this paper that livestock prices in Niger, a representative Sahelian country, respond not only to weather shocks but also to shifts in the rural and urban demand for meat in the country and in neighboring Nigeria. The basis for our analysis is price data on 15 animal categories collected monthly in 38 districts of Niger over a period of 21 years. The questionable quality of the data and the high proportion of _ _____________ 1 Specialized nomadic herders. 2 See also Rosenzweig and Wolpin (1993) for evidence that Indian farmers rely on the sale and purchase of bullocks to smooth consumption. For a theoretical discussion of the role of precautionary savings as a hedge against risk, see Zeldes (1989), Kimball (1990), and Deaton (1992a, 1992b).