How costly is using livestock as a savings device?

Livestock is a major savings device in sub-Sahara Africa agriculture. I measure to what extent the value of livestock drops during food shortages. For this purpose I exploit Malawian prices of meat and maize for 72 markets from 1991 to 2009, a period with several food shortages. I show that large drops in the meat–maize terms of trade – our proxy for the value of livestock – are associated with food shortages. During food shortages the value of livestock decreases with 54% to 65%. The evidence is consistent with increased livestock sales during food shortages, but the drop in meat–maize terms of trade arises primarily due to increases of maize prices. Our results are robust to spatial spill-overs and various other threats. Similar drops in livestock value are shown to occur in other SSA countries. The value of livestock has decreased at the very moment livestock is sold on the market to purchase staple foods. Like produced staple foods, agricultural households systematically sell low. To bridge food shortage periods savings instruments are needed that do not lose value when liquidated. A few policy options are discussed. On-farm grain storage appears most promising.