Responding to Rising Food Prices
in ESA: A Regional Perspective
By
Joseph Karugia,
Coordinator
ReSAKSS-ECA

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
expenditures => large contribution to
inflation
• High Prices => incentive for farmers to
increase supply

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

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

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

Pattern of price changes is mixed
• Severity of the problem differs:
across countries
across commodities
time of the year

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

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

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

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

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

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

What levers to pull?
• Increase production?
– Productivity decline, climatic factors,…
• Control demand?
– Population growth, income inequalities, ...
• Many slow to respond >3 years

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 transaction costs
Busia -Uganda Busia -Kenya

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

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”]

Recommended Policy Options

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

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

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

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

THANK YOU