Responding to Rising Food Prices
 in ESA: A Regional Perspective

                 By
           Joseph Karugia,
         ...
Outline

• Introduction

• Food Situation in ESA

• Regional Dimensions

• Recommended Policy Options
Introduction

• FAO food price index increased by 56%
  between Mar 07 and Mar 08
• Food forms 40-70% of household
  expen...
Introduction (2)
• Magnitude and implications of price changes
  in national and regional markets =>
  appropriate policy ...
Comparing FAO and country FPIs
                                                                            FAO global food...
Conflicting trends….

Changes in Commodity Prices Jan-Mar 2008 (% )

Country      Maize   Beans   Rice   Wheat   Meat

Ken...
Pattern of price changes is mixed

• Severity of the problem differs:
  across countries
  across commodities
  time of...
Why are countries affected
             differently?

• Food baskets are different:
     Main staple internationally trad...
Changes in Prices of Main Staples
              %               % Change in
           Change             Commodity Price
...
Factors affecting demand for food in
                 ESA
• Population growth, rising incomes (though
  inequalities in in...
Factors contributing to low supply of
            food in ESA
• Low investments in agriculture and rural
  development

• ...
Yields are low and decreasing or
                                      stagnant
                     10                   ...
Differential impact on households
                            Poor are hit hardest   Net sellers less affected
    Rural n...
What levers to pull?

• Increase production?
  – Productivity decline, climatic factors,…

• Control demand?
  – Populatio...
Regional approach offers better
             prospects

• Exploit diversity in the region
Heterogeneity in production

ESA harvesting timeline




                          Source: Data: FEWSNET,2008
Most action is in domestic and
         regional markets…
• But, there are serious barriers to trade: wasteful,
  high tra...
Some responses contributing to the
          problem…
Reduce taxes on food grains
Cash transfers
Food for work
School feed...
Conclusions
•   The rise in global food prices is not completely
    transmitted to domestic markets

•   Regional Respons...
Recommended Policy Options
Protect the vulnerable

•   Priority Actions (for urban poor)
        – Targeted food subsidies and cash transfers where
 ...
Exploit regional diversity and facilitate
              regional trade

• Priority Actions

     • Remove export bans

   ...
Enhance supply response
•   Priority Actions
     •   Make agricultural inputs affordable

     •   Build on best bet tech...
Strengthen and use regional institutions
    for preparedness and response

• Priority Actions:
     • Strengthen market i...
THANK YOU
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Responding to Rising Food Prices in Eastern and Southern Africa: A Regional Perspective

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Responding to Rising Food Prices in Eastern and Southern Africa: A Regional Perspective, June 2008, By Joseph Karugia, Coordinator ReSAKSS-ECA

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Transcript of "Responding to Rising Food Prices in Eastern and Southern Africa: A Regional Perspective"

  1. 1. Responding to Rising Food Prices in ESA: A Regional Perspective By Joseph Karugia, Coordinator ReSAKSS-ECA
  2. 2. Outline • Introduction • Food Situation in ESA • Regional Dimensions • Recommended Policy Options
  3. 3. Introduction • FAO food price index increased by 56% between Mar 07 and Mar 08 • Food forms 40-70% of household expenditures => large contribution to inflation • High Prices => incentive for farmers to increase supply
  4. 4. Introduction (2) • Magnitude and implications of price changes in national and regional markets => appropriate policy action • Approach – Data – Consultations among policy advisers, analysts and researchers from national, regional and international organizations
  5. 5. Comparing FAO and country FPIs FAO global food 160 price index 150 Ethiopia 140 Food Price Indices Kenya 130 120 Tanzania 110 Uganda 100 90 Madagascar 80 Malawi 70 Mar- Jun- Sep- Dec- Mar- 07 07 07 07 08 Rwanda Source: FAO, 2008; country statistics offices
  6. 6. Conflicting trends…. Changes in Commodity Prices Jan-Mar 2008 (% ) Country Maize Beans Rice Wheat Meat Kenya 19 32 21 Tanzania 8 2 18 Uganda -2 7 0 7 Rwanda -14 -1 2 -6 4 Ethiopia 39 28 43 22 Zambia 14 5 4
  7. 7. Pattern of price changes is mixed • Severity of the problem differs: across countries across commodities time of the year
  8. 8. Why are countries affected differently? • Food baskets are different: Main staple internationally traded Net importer or exporter of staple • Integration of domestic to regional and international markets
  9. 9. Changes in Prices of Main Staples % % Change in Change Commodity Price Country FPI Severity Traded? L/locked? Mar-07 to Staple Mar-07 to Mar-08 food Mar-08 Kenya 20.1 Maize 30.0 +++ Yes No Tanzania 11.2 Maize 93.7 ++ Yes No Zambia 9.1 Maize 33.8 + Yes Yes Rwanda 1.7 Beans 35.5 + Yes Yes Uganda 8.6 Banana 6.7 + No Yes Ethiopia 39.4 Teff 19.81 ++++ No Yes
  10. 10. Factors affecting demand for food in ESA • Population growth, rising incomes (though inequalities in income distribution make the poor very vulnerable), urbanization • However, Demand factors change only slowly and may not be responsible for the recent spike and volatility
  11. 11. Factors contributing to low supply of food in ESA • Low investments in agriculture and rural development • High prices of inputs – fertilizers, fuel, feed • Climatic shocks • Impacts of trade: inefficiencies, expensive imports, policies • Disruption of supply – conflicts
  12. 12. Yields are low and decreasing or stagnant 10 Burundi Comoros 9 DRC 8 Djibouti Egypt Maiza Yield (Tonne/Ha) 7 Eritrea 6 Ethiopia Kenya 5 Libya 4 Madagascar Malawi 3 Mauritius 2 Rwanda Seychelles 1 Sudan 0 Swaziland 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Uganda Zambia Year Zimbabwe
  13. 13. Differential impact on households Poor are hit hardest Net sellers less affected Rural net buyers more affected Urban poor depend on markets for food supplies
  14. 14. What levers to pull? • Increase production? – Productivity decline, climatic factors,… • Control demand? – Population growth, income inequalities, ... • Many slow to respond >3 years
  15. 15. Regional approach offers better prospects • Exploit diversity in the region
  16. 16. Heterogeneity in production ESA harvesting timeline Source: Data: FEWSNET,2008
  17. 17. Most action is in domestic and regional markets… • But, there are serious barriers to trade: wasteful, high transaction costs Busia -Uganda Busia -Kenya
  18. 18. Some responses contributing to the problem… Reduce taxes on food grains Cash transfers Food for work School feeding Agricultural input subsidies Increase food supply via imports Reduce food import tariffs Lower import tariffs for agricultural inputs Food stamps or vouchers Increase food supply using food grain stocks Price controls and/or consumer subsidies*** Food export restrictions*** Good for food security Some concerns for food security Likely to hinder food security Highly likely to hinder food security Source: World Bank, 2008
  19. 19. Conclusions • The rise in global food prices is not completely transmitted to domestic markets • Regional Response offers opportunities to address the price crisis • Food crisis offers opportunities for agricultural development through increased domestic production, regional trade and integration [Paul Romer: “A crisis is a terrible thing to waste”]
  20. 20. Recommended Policy Options
  21. 21. Protect the vulnerable • Priority Actions (for urban poor) – Targeted food subsidies and cash transfers where markets are working – Targeted food aid where markets are not working – Reduce taxes on food grains • For rural poor, in addition provide production support
  22. 22. Exploit regional diversity and facilitate regional trade • Priority Actions • Remove export bans • Eliminate NTBs • Simplify trade • Upgrade, maintain infrastructure and facilities on the main trade corridors
  23. 23. Enhance supply response • Priority Actions • Make agricultural inputs affordable • Build on best bet technologies • Exploit economies of scale in input procurement and facilitate trade in inputs • Pilot innovative risk management strategies – warehouse receipt system, index based insurance systems
  24. 24. Strengthen and use regional institutions for preparedness and response • Priority Actions: • Strengthen market information & intelligence (e.g. RATIN,FEWSNET, EAGC) • Institutional frameworks for preparedness, response, and learning
  25. 25. THANK YOU
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