Food Trade in Political Conflict: Demand for Differentiated Fresh Fruits in the Palestinian Wholesale Market of Hebron

The bioeconomy of developing countries largely focuses on the production and distribution of food given limitations in production inputs and infrastructure. Food security remains a central challenge for development. Additionally, many developing countries in Africa and Asia suffer from recurring politicial instabilities of varying intensity which pose further threats by complicating conditions for food production and trade. We focus on this question by assessing the pricing and demand for apples, an important part of the local diet, subject to the economic impediments resulting from the long-lasting conflict between Israel and the Palestinians. We analyze a unique wholesale dataset from the Hebron fruits and vegetable market by analyzing in total 4000 daily price and quantity observations of 12 apple varieties and an extraordinarily rich set of variables quantifying various aspects of the conflict. We employ an oligopolistic market model and account for product differentiation. The intensity of the conflict significantly affects the behavior of traders and consumers being mostly of short-run nature. While days of exceptionally high numbers of fatalities negatively shock both prices and quantities, fatalities in the last 3 days have the opposite effect. Periods of severe crisis as a measure of long-term effects only increase demand. The average demand elasticity of apples is appr. -4 and triples in periods during which restrictions on the movement of Palestinians are imposed. Finally, we do not find evidence for anymosity of Palestinian consumers against Israeli produce: Demand and prices of Israeli apples are higher than those of the local Palestinian produce