The 2010-2011 Drought Impacts on Cattle Market Integration in the Horn of Africa: A preliminary Evaluation using VAR and Structural Break Analysis

Livestock rearing is an important risk reduction strategy for vulnerable communities in developing countries and a major provider of nutrients and traction for crop production. However there is a great concern for pastoral population in the arid and semi-arid zones of East Africa due to recurring drought. Drought leads to the decline in forage and water availability which in return deteriorates the overall livestock health and reduces livestock prices and revenues. This study analyzes the level of price interaction among livestock markets in Ethiopia and Kenya and the impact of the 2010-2011’s drought on cattle prices using time series analysis. The results on cattle price dynamics show limited interaction among cattle markets in both countries. The structural break analysis indicates the period around 2010-2011 as a predominant break date for the markets in Ethiopia and Kenya. A lack of market integration in addition to drought prevent cattle herders from using markets as a mitigating mechanism against drought, by selling livestock to destock during drought and buying livestock to restock after drought. In brief, a high level of livestock markets integration can lower the risk of losing animals during a drought