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Dynamics of Food Pricesin Ethiopia

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Ethiopian Development Research Institute (EDRI) and International Food Policy Research Institute (IFPRI), Seminar Series, May 24, 2012
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Dynamics of Food Prices in Ethiopia Tadesse Kuma 24 May 2012 Ghion Hotel, Addis Ababa EDRI/ESSP/ASARECA
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Page 1: Dynamics of Food Pricesin Ethiopia

Dynamics of Food Prices

in Ethiopia

Tadesse Kuma

24 May 2012

Ghion Hotel, Addis Ababa

EDRI/ESSP/ASARECA

Page 2: Dynamics of Food Pricesin Ethiopia

Outline

Introduction Food Price Trends in Ethiopia Causes of Food Price Inflation in

Ethiopia Government Response Planned Research Concluding Remarks

Page 3: Dynamics of Food Pricesin Ethiopia

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

Page 4: Dynamics of Food Pricesin Ethiopia

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)

Page 5: Dynamics of Food Pricesin Ethiopia

Global food prices (3)

Source: FAO , 2012

Fig. 1: FAO Global Food Price Index

Page 6: Dynamics of Food Pricesin Ethiopia

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

Page 7: Dynamics of Food Pricesin Ethiopia

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

Page 8: Dynamics of Food Pricesin Ethiopia

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)

Page 9: Dynamics of Food Pricesin Ethiopia

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

Page 10: Dynamics of Food Pricesin Ethiopia

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)

Page 11: Dynamics of Food Pricesin Ethiopia

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)

Page 12: Dynamics of Food Pricesin Ethiopia

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)

Page 13: Dynamics of Food Pricesin Ethiopia

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

Page 14: Dynamics of Food Pricesin Ethiopia

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)

Page 15: Dynamics of Food Pricesin Ethiopia

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

)

Page 16: Dynamics of Food Pricesin Ethiopia

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)

Page 17: Dynamics of Food Pricesin Ethiopia

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

Page 18: Dynamics of Food Pricesin Ethiopia

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

Page 19: Dynamics of Food Pricesin Ethiopia

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

Page 20: Dynamics of Food Pricesin Ethiopia

Source: FAO, 2011

Fuel price changes (3)

Page 21: Dynamics of Food Pricesin Ethiopia

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

Page 22: Dynamics of Food Pricesin Ethiopia

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.

Page 23: Dynamics of Food Pricesin Ethiopia

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

 

Page 24: Dynamics of Food Pricesin Ethiopia

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.

Page 25: Dynamics of Food Pricesin Ethiopia

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

Page 26: Dynamics of Food Pricesin Ethiopia

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