SECTION ONE

Terms of Trade of key commodities

Definition/RATION/ALE

The terms of trade (TOT) is a measure of the relative value of one commodity to another (or the inverse of their relative prices) and thus a measure of the exchange value of the good or service to be traded. Terms of trade with cereal prices can provide good information on how consumer prices are moving in relation to each other and provide insight on the purchasing power of producing households.

Methodology for collection – How to collect information for indicator (max 4 lines).

  • • Prior to data collection use local experts and cash partners to create a list of core items to monitor the relative ToT for, including 1. Food crop to food crop 2. Livestock to cereal 3. Wage to cereal 4. Cash crop to cereal 5. Natural resources (charcoal, firewood) to cereal
  • • Collect the price data from up to four different retail traders in target market and collected on a monthly basis, ideally from the same traders.

Methodology for analysis – How to analyse (Max 4 lines)

  • • For each of the selected ToT ratios, divide the selling price by the purchasing price. I.e. The selling price of a grade 2 divided by the costs of 50kg bag of cereals, the result will be the number of bags of cereal one goat can purchase.
  • • Best to collect on a regular basis to show trend analysis.
  • • Threshold for a large change in ToT is 15%. I.e. One goat purchasing 15% less sorghum than compared to the previous month.
  • • Analysis of ToT need to be contextualized for the livelihood zone and consumer preferences.

Notes on indicator –
What does the indicator not tell us.
How long is it reliable for?

  • • Some households substitute among more than two commodities. Terms of trade ratios are limited to looking at prices of two commodities
  • • Relatively lower prices for one commodity compared to another does not necessarily mean households will switch consumption towards the lower priced commodity.
  • • Relevance of ToT changes with macro-economics of the country, unstable countries will likely have more volatile ToT; leading to a need for more frequent monitoring.
  • • ToT has seasonal changes that also need to be monitored.

When to use it/when not to use it:

  • • To monitor changes in household purchasing power, particularly after an economic shock or seasonal increase in prices.
  • • Data should be collected during different seasons and after the onset of a shock, such as flooding or insecurity.

Core: Y/N

No

IPC Categories:

Contributing Factor

M&E: IMPACT, OUTCOME, OUTPUT, PROCESS

Outcome

Recall?

7 days

Link to Guidance