Spatial Price Transmission and Food Security: The case of Kosovo

Interest on the empirical assessment of the price transmission has been extended particularly after the global food price shocks of 2007-2008. This study is focused on the spatial price transmission analysis from the world commodity markets into the agricultural commodity markets in Kosovo. Kosovo is characterized as a rural economy, where more than 60% of population is living in rural areas. Kosovo is net food importer and implications of the recent global food price hikes were affecting considerably domestic food demand as well as were raising concerns of food security. Findings of this paper suggest that Kosovo is significantly exposed to the food security risk factors. The set of causal food insecurity factors has been identified in this paper. Official records demonstrate that self-sufficiency ratio of the key food staples in Kosovo varies from 75% for wheat and meat to 82% for maize. On the other hand, annual share of household food expenditures in total consumption exceeds 40%. Empirical analysis of this paper are based on estimations of unit root tests, cointegration tests, Granger causality tests, estimation of error correction models and test of price transmission asymmetry. Spatial price transmission analysis found that Kosovo is vulnerable to the price transmitting signals from the world market. Empirical findings suggest strong evidence of asymmetry for world and domestic prices of wheat and beef and weak evidence of asymmetry for barley and chicken. Based on the results of the error correction models it can be assumed that that prices in Kosovo react with different speed to positive and negative deviations, while world prices do not react to shocks in Kosovo prices. Kosovo as a price taker in the global trade has limited policy instruments to respond to the global food price vulnerability. The main food security policy axis should be directed on productivity improvement and enhancement of the competitiveness of agriculture in those sectors in which Kosovo has comparative advantage