Dynamics of Food Prices
in Ethiopia
Tadesse Kuma
24 May 2012
Ghion Hotel, Addis Ababa
EDRI/ESSP/ASARECA
Outline
Introduction Food Price Trends in Ethiopia Causes of Food Price Inflation in
Ethiopia Government Response Planned Research Concluding Remarks
1. Introduction (1)
Food is a fundamental necessity to human survival, economic and social stability;
Its availability, accessibility, affordability and quality has remained a challenge for most governments in developing countries;
Aggregate food production at global level enough for all human population; however, distribution is and issue
Any negative shock in the food production and prices directly or indirectly affects millions in developing countries; E.g., current food price hike
Global food prices (2)
From the 1970s until the early 2000s, food prices on the international market remained relatively stable
However, with spike in global food crisis in 2007, it began to soar and by mid-2008 it had reached its highest level in 30 years for most commodities including staple grains (FAO, 2011).
Stabilised in 2009 but showing an upward trend in year 2010
Food prices started to soar again and reached their highest beginning January 2011 for the second time (Figure 1)
Global food prices (3)
Source: FAO , 2012
Fig. 1: FAO Global Food Price Index
Fig.2: Share household expenditures on food (4)
60%
Pessimistic and optimistic views on food security and prices Pessimistic view : population, climate change, soil degradation, power difference Optimistic view : Investment, technological innovation, global cooperation
Source: Jongsoo Shin, 2012
Purpose of the study (5)
Understand current price trends of major food crops in Ethiopia
Explore major causes of food price hike in Ethiopia
Discuss future challenges and possible solutions
Method of analysis: Descriptive analysis, trends, and Granger
causality
Ethiopia’s economic growth strategy (ADLI) and its poverty reduction strategies put heavy emphasis on cereal production
Cereal price intervention has remained a predominant consideration in food policy making
Source: Shahid, 2010
0
20
40
60
80
100
3040
60 62 60
80Fig. 3: Percentage share of cereals in the
economy
Pe
rce
nta
ge
Understanding cereal price movement has important implication for national food security in Ethiopia Although there has been promising achievement in the agricultural sector performance, still much needs to be done to improve agricultural productivity, market infrastructure and technology.
2. Food price trends in Ethiopia (1)
Jul-9
7
Feb-
98
Sep-
98
Apr-9
9
Nov-9
9
Jun-
00
Jan-
01
Aug-0
1
Mar
-02
Oct-0
2
May
-03
Dec-0
3
Jul-0
4
Feb-
05
Sep-
05
Apr-0
6
Nov-0
6
Jun-
07
Jan-
08
Aug-0
8
Mar
-09
Oct-0
9
May
-10
Dec-1
0
Jul-1
1
Feb-
120.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
Fig. 4: Food and non-food price index (Dec. 2007=100) (2)
General price index
Food price index
Cereals price index
Non-food price index
Index
Source: CSA, 2012
Cereal price index
Jan-
02
Jun-
02
Nov-0
2
Apr-0
3
Sep-
03
Feb-
04
Jul-0
4
Dec-0
4
May
-05
Oct-0
5
Mar
-06
Aug-0
6
Jan-
07
Jun-
07
Nov-0
7
Apr-0
8
Sep-
08
Feb-
09
Jul-0
9
Dec-0
9
May
-10
Oct-1
0
Mar
-11
Aug-1
1
Jan-
120
200
400
600
800
1000
1200Fig. 5: Nominal cereal price trends for
Addis Ababa market
Teff Wheat white Maize whiteSorghum white
Pri
ce (
Bir
r/1
00
kg
s)
Price trends of major cereals (3)
Price trends of teff and wheat (4)
Jan-0
4
Jul-0
4
Jan-0
5
Jul-0
5
Jan-0
6
Jul-0
6
Jan-0
7
Jul-0
7
Jan-0
8
Jul-0
8
Jan-0
9
Jul-0
9
Jan-1
0
Jul-1
0
Jan-1
1
Jul-1
1
0
200
400
600
800
1000
1200
Fig. 6: Price trends of teff (real and nominal)
Addis Ababa (NP)Addis Ababa (RP)
Pri
ce (
Bir
r/100K
gs)
The Ethiopian economy historically characterized by low inflation until 2006.
Jul-0
2
Mar
-03
Nov-0
3
Jul-0
4
Mar
-05
Nov-0
5
Jul-0
6
Mar
-07
Nov-0
7
Jul-0
8
Mar
-09
Nov-0
9
Jul-1
0
Mar
-11
Nov-1
10
100
200
300
400
500
600
700
800
900
1000
Fig. 7: Price trends of Wheat
(real and nominal)
Addis Ababa Addis Ababa (RP)
Pri
ces (
Bir
r/100K
gs)
Price trends of maize and sorghum (5)
Dec-0
4
May-0
5
Oct-0
5
Mar-0
6
Aug-0
6
Jan-
07
Jun-
07
Nov-0
7
Apr-0
8
Sep-
08
Feb-
09
Jul-0
9
Dec-0
9
May-1
0
Oct-1
0
Mar-1
1
Aug-1
1
Jan-
120
100
200
300
400
500
600
700
Fig. 8: Price trends of Maize
(real and nominal)
AA Addis Ababa (NP)
Pri
ces (
Bir
r/100K
gs)
The divergence between nominal and real price account for inflation
Maize and sorghum prices exhibited more volatility During second price surge in 2011, maize price exceeded its 2008 level.
Jul-0
2
Apr-0
3
Jan-
04
Oct-0
4
Jul-0
5
Apr-0
6
Jan-
07
Oct-0
7
Jul-0
8
Apr-0
9
Jan-
10
Oct-1
0
Jul-1
10
100
200
300
400
500
600
700
800
900Fig.9: Price trends of
Sorghum (real and nominal)
Addis Ababa (Nominal price)
Pri
ces (
Bir
r/100K
gs)
Ethiopia, global & regional prices (6)
Jan
-07
Mar-
07
May-0
7
Jul-0
7
Sep
-07
Nov-0
7
Jan
-08
Mar-
08
May-0
8
Jul-0
8
Sep
-08
Nov-0
8
Jan
-09
Mar-
09
May-0
9
Jul-0
9
Sep
-09
Nov-0
9
Jan
-10
Mar-
10
May-1
0
Jul-1
0
Sep
-10
Nov-1
0
Jan
-11
Mar-
11
May-1
1
Jul-1
1
Sep
-11
0
100
200
300
400
500
600 Fig. 10: Global and regional maize price index (Jan. 2007= 100)Kenya - dry maize bag 90kg bag
Uganda - Maize grain KgEthiopia- Maize (white) kg Tanzania Wholesale Prices TZS/ 100 kgFAO Global - Maize (U.S. Gulf, #2 yellow, US$/Ton)Malawi - Retail prices in Malawi kwacha per kilogram
Jan
-07
Ma
r-0
7
Ma
y-0
7
Jul-
07
Se
p-0
7
No
v-0
7
Jan
-08
Ma
r-0
8
Ma
y-0
8
Jul-
08
Se
p-0
8
No
v-0
8
Jan
-09
Ma
r-0
9
Ma
y-0
9
Jul-
09
Se
p-0
9
No
v-0
9
Jan
-10
Ma
r-1
0
Ma
y-1
0
Jul-
10
Se
p-1
0
No
v-1
0
Jan
-11
Ma
r-1
1
Ma
y-1
1
Jul-
11
Se
p-1
1
0
50
100
150
200
250
300
Figure 11: Price trends of wheat: Ethiopia vs. global and regional price index (Jan 2007 = 100)
Ethiopia- White Wheat Milled KgKenya- Wheat Bag Zambia- Wheat (flour), Retail, Kwacha, 2.5 KgFAO Global - Soft Red Winter Wheat , US Gulf (US$/Ton)
Ethiopia, global & regional prices (7)
Wheat: Import & export parity prices (8)
Jan-
98
Jul-9
8
Jan-
99
Jul-9
9
Jan-
00
Jul-0
0
Jan-
01
Jul-0
1
Jan-
02
Jul-0
2
Jan-
03
Jul-0
3
Jan-
04
Jul-0
4
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
0
100
200
300
400
500
600
700
800
Fig. 12: Wheat: Import and export parity prices
Wholesale price at Addis Ababa ($/MT)
Import parity (Addis Ababa)
Export parity (FOB Djibouti)
Pri
ce
(U
SD
/MT
)
0
100
200
300
400
500
600
700
Fig. 13: Maize: Import and export parity price
Wholesale price at Addis Ababa ($/MT) Import parity (Addis Ababa) Export parity (FOB Djibouti)
Pri
ce (
$/M
T)
Maize: Import & export parity price (9)
Leading market Null hypothesis Follower markets F-Statistic Probability Vise versa
Teff market
Addis Ababa
Teff price of AA market does not Granger Cause
Shasehemene 13.0662 1.5E-05 Yes, 5% sig
Bahir Dar 15.5089 2.6E-06 No, very weakJimma 19.3666 1.9E-07 No
Mekele 25.6120 4.2E-09 No, very weak Dire Dawa 18.4743 3.5E-07 No
Wheat market
Addis Ababa
Wheat price of AA market does not Granger cause
Shashemene 7.23532 0.00143 Yes, 1% sigJimma 15.1370 3.8E-06 Yes, 10% sigMekele 10.9383 7.7E-05 NoDire Dawa 9.35685 0.00026 No
Maize market
Addis Ababa
Maize price of AA market does not Granger cause
Shashemene 2.98561 0.05698
Yes, 1% sig stronger
Bahir Dar 12.0024 3.3E-05 Yes, 1% Sig.Jimma 5.90576 0.00427 Yes, 10% sig.Mekele 3.59248 0.03272 Yes, 1% sigDire Dawa 8.21027 0.00063 No
”Granger-causality” test results (10)
Teff … Uni-directional causality – it run from AA to others Wheat … partly bi-directional --- Shashemene price granger causes many other market Maize …. Bi- directional causality for most of markets
3. Causes of food price inflation in Ethiopia (1)
Why high food price inflation in Ethiopia? Increase in domestic demand, expansionary monetary policy,
a shift from food aid to cash transfers, high investments in infrastructure (Ahmed, 2007; IMF, 2008b; Rashid, 2010);
Overall inflation in Ethiopia is partly associated with agriculture production and food supply situation in the global economy (Minot, 2010);
Increase in international commodity prices including oil; mal-functioning of wholesale markets; rapid increase in money supply; inflationary expectations; institutional weakness to manage abnormal price movement (source: Answers by H.E Ato Melese for Questions raised by MPs, Miazia 8/2004 EFY).
However, their is little consensus on the relative importance of factors
Oil and cereal price index (2)
Dec-0
6
Apr-0
7
Aug-
07
Dec-0
7
Apr-0
8
Aug-
08
Dec-0
8
Apr-0
9
Aug-
09
Dec-0
9
Apr-1
0
Aug-
10
Dec-1
0
Apr-1
10
50
100
150
200
250
300
350
Fig. 18: Addis Ababa cereal & fuel price Index
(Dec. 2006 = 100)
Fuel Price Index
Average cereal Price Index
Ind
ex
Source: FAO, 2011
Fuel price changes (3)
Impact of increasing food price (4)
Who are affected the most? Most
vulnerable groups (poor, elderly) with less ability adjust their spending
Fig. 15: Elderly women puzzled by abnormally high price of chicken during Eth. Easter
4. Government responses
During 2008 food price crisis, the GoE initiated a subsidized urban food supply programs, carried out open market sales, suspended local procurement by the World Food Programme (WFP); removal of taxes on food items, banning cereal export,
In January 2011, the government imposed price caps on basic commodes and lifted in the June 2011 (for most commodities but not all);
Outcome(s) of these policies are : subsidized food supply stabilized market prices of cereals but of price cap is not very clear.
5. Planned research (1)
Collaborative effort of all partners in the chain
EDRI envisages to deepen analysis and dissemination of food price information;
EDRI/ASARECA Project on:Food Price Trend An analysis and Policy Options for Enhanced Food Security in Eastern Africa
Background Initiated during first global food price hike in
2008 Need for regional collaboration and cooperation Six eastern African countries are involved:
Ethiopia, Kenya, Tanzania, Malawi, Uganda and Rwanda
Planned research (2)
Justification Policy makers implemented broad spectrum of ad
hoc policy actions to address the food crisis;
There are successes as well as failures. The failures in the food security policies are mainly attribute to lack of evidence that is needed by policy makers to make informed policy decisions.
The negative effects of high food prices could potentially have been alleviated if policy makers had been better informed about the food price situation.
Observations from trend analysis Prices surge in 2008, started to stabilize in 2009, begin to rise in 2010 and peaked in the early
2012 In Ethiopia, food prices remained high compared to some of neighboring countries and global
prices Excessive price volatility, mainly for maize Dominance of some of markets over others (e.g., Addis Ababa)
Suggested policy choices Prudent macroeconomic policy (short term) Rising domestic agricultural production/supply and productivity Strengthening institutional arrangement for capacity building and strict
market monitoring More long term investment on agricultural infrastructure and human
resource development better information and more research
Challenges Data reliability Increasing uncertainty in agricultural production due climate change and
weather variability
6. Concluding remarks
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