Your SlideShare is downloading. ×
Foreign Exchange Rationing and Food Security in Ethiopia
Foreign Exchange Rationing and Food Security in Ethiopia
Foreign Exchange Rationing and Food Security in Ethiopia
Foreign Exchange Rationing and Food Security in Ethiopia
Foreign Exchange Rationing and Food Security in Ethiopia
Foreign Exchange Rationing and Food Security in Ethiopia
Foreign Exchange Rationing and Food Security in Ethiopia
Foreign Exchange Rationing and Food Security in Ethiopia
Foreign Exchange Rationing and Food Security in Ethiopia
Foreign Exchange Rationing and Food Security in Ethiopia
Foreign Exchange Rationing and Food Security in Ethiopia
Foreign Exchange Rationing and Food Security in Ethiopia
Foreign Exchange Rationing and Food Security in Ethiopia
Foreign Exchange Rationing and Food Security in Ethiopia
Foreign Exchange Rationing and Food Security in Ethiopia
Foreign Exchange Rationing and Food Security in Ethiopia
Foreign Exchange Rationing and Food Security in Ethiopia
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Foreign Exchange Rationing and Food Security in Ethiopia

671

Published on

Ethiopian Economics Association (EEA), Seventh International Conference on the Ethiopian Economy, June 26, 2009

Ethiopian Economics Association (EEA), Seventh International Conference on the Ethiopian Economy, June 26, 2009

Published in: Technology, Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
671
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
8
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Foreign Exchange Rationing and Food Security in Ethiopia Paul Dorosh International Food Policy Research Institute (IFPRI) (Ethiopia Strategy Support Program, ESSP-2) Hashim Ahmed Ethiopian Development Research Institute (EDRI) Ethiopian Economics Association Seventh International Conference on the Ethiopian Economy 26 June, 2009 The views expressed in this paper are those of the authors and do not represent the official positions of their respective institutions.
  • 2. Outline of Presentation • Recent macro-economic developments – Current account – Nominal and real exchange rates • Changing determinants of wheat prices over time – Import parity and decomposition of nominal prices • Implications of rationing of foreign exchange • Government market interventions 2008 • Concluding observations
  • 3. Ethiopia Trade and Current Account Transfers, 2004/05 – 2008/09* 12 10 8 billion US$ 6 4 2 0 2004/05 2005/06 2006/07 2007/08 2008/09* Imports Exports + All Transfers Exports + Net Servs + Priv Transfers Exports * Projected.
  • 4. Ethiopia Trade and Current Account Transfers, 2004/05 – 2008/09* Nominal Nominal Exchange Real Exchange Rate (Birr/$) World Price World Price Exchange (Birr/$) (Index) Index ($) Index (Birr) CPI Rate Index July 2004 8.80 100.0 100.0 100.0 100.0 100.0 January 2005 8.83 100.3 102.7 103.0 102.9 100.1 July 2005 8.84 100.5 101.4 101.9 111.5 91.3 January 2006 8.86 100.6 104.1 104.7 112.8 92.8 July 2006 8.87 100.8 108.7 109.6 125.7 87.2 January 2007 8.99 102.1 110.4 112.7 131.6 85.7 July 2007 9.21 104.7 116.8 122.3 143.6 85.1 January 2008 9.40 106.9 127.0 135.7 157.5 86.1 July 2008 9.83 111.7 139.6 156.0 235.8 66.2 January 2009 11.06 125.7 120.0 150.8 217.0 69.5 March 2009 11.39 129.5 120.2 155.7 222.2 70.1 July 04 - Mar 09 (percent change) 29.5% 29.5% 20.2% 55.7% 122.2% -29.9% Source: EDRI and authors’ calculations.
  • 5. Ethiopia: Nominal and Real Exchange Rate Indices, 2004/05 – 2008/09* 250 200 150 100 50 0 Jul-04 Dec-04 May-05 Oct-05 Mar-06 Aug-06 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Real Exchange Rate Nominal Ex Rate CPI World Price Index
  • 6. Determinants of Wheat Prices Four Market Regimes • January 2000-June 2005: Domestic wheat prices were generally between import and export parity – Given levels of official imports (including food aid), there was little incentive for private sector imports of ordinary wheat – Domestic prices were determined by domestic supply (including official imports) and demand • July 2005-March 2007: Domestic wheat prices were generally at import parity levels – Private sector imports adjusted to equate total supply and domestic demand at the import parity price • April 2007- May 2008: Domestic wheat prices were again below import parity – Given sharp increases in world prices, private sector imports were not profitable • June 2008 – May 2009: Domestic wheat prices were above import parity – Restrictions on foreign exchange for imports prevented private imports from taking advantage of profitable import opportunities
  • 7. Wheat Domestic and Border Prices (US$ / ton) 800 700 600 500 Price ($/ton) 400 300 200 100 0 Month/Year Wholesale Price Addis Import Parity Addis Export Parity Addis
  • 8. Domestic Wheat Prices and Import Parity, 1998-99 to 2008-09* White Wheat White Wheat Wheat Nominal Wholesale Exchange Wholesale Import Parity Protection Crop Year Addis Rate Addis Addis Coefficient (October-September) (Birr/kg) (Birr/$) ($/ton) ($/ton) (percent) 1998-99 1.97 7.87 248.9 119.2 12.8% 1999-00 2.06 8.30 248.0 113.2 14.9% 2000-01 1.49 8.52 175.4 130.8 -25.0% 2001-02 1.28 8.69 147.5 137.1 -38.5% 2002-03 1.98 8.72 227.1 155.1 -11.9% 2003-04 1.72 8.78 195.8 161.9 -26.4% 2004-05 1.85 8.83 209.6 155.2 -20.1% 2005-06 2.42 8.86 272.5 187.5 -8.5% 2006-07 2.84 9.06 313.1 231.1 -10.3% 2007-08 4.77 9.60 493.3 371.5 -2.7% 2008-09* 5.58 10.76 522.3 246.7 30.4% Average 2000-01 - 04-05 1.66 8.71 191.1 148.0 -24.4% Average 2005/06 - 07-08 3.34 9.17 359.6 263.3 -7.2% * October 2008 – April 2009. Source: EGTE data and authors’ calculations.
  • 9. Wheat Domestic and Border Prices (Birr(2006)/ quintal) 500 450 400 350 Price (Birr (2006)/quintal) 300 250 200 150 100 50 0 Month/Year White Wheat Wholesale Addis Export parity (FOB Djibouti) Import Parity
  • 10. Real Wheat Prices and Import Parity 1998-99 to 2008-09* Real Real Real Real Real Import Price Import Price Exchange Import Price Import Parity Wholesale CIF Djibouti CIF Djibouti Rate CIF Djibouti Price Price ($/ton) ($2004/ton) (Jly 2004=100) (Birr 2004/qntl) (Birr 2004/qntl) (Birr 2004/qntl) 1998-99 161.8 186.2 94.3 149.1 204.4 228.9 1999-00 155.9 180.7 95.2 146.7 203.2 233.4 2000-01 173.5 209.1 95.8 181.9 244.8 182.8 2001-02 179.7 215.2 99.4 196.8 262.7 161.1 2002-03 197.7 220.4 94.7 185.2 241.2 211.5 2003-04 204.6 208.8 99.8 183.6 238.8 175.3 2004-05 195.2 190.9 96.4 161.0 216.3 172.0 2005-06 222.5 209.6 90.4 163.2 218.6 199.8 2006-07 262.4 232.4 84.2 167.0 222.1 199.9 2007-08 401.5 307.2 77.2 204.6 258.4 239.6 2008-09* 276.7 227.5 56.8 128.7 186.4 242.3 Ave 00-01 to 04-05 190.1 208.9 97.2 181.7 240.7 180.6 Ave 05/06 to 07-08 295.4 249.7 83.9 178.3 233.0 213.1 03/04-08/09 %change 55.4% 19.5% -13.7% -1.9% -3.2% 18.0% * October 2008 – April 2009. Source: EGTE data and authors’ calculations.
  • 11. Wheat Domestic and Border Prices (Birr/ quintal) 800 700 600 Price (Birr/quintal) 500 400 300 200 100 0 Month/Year White wheat wholesale Addis Import Parity Import Sales Price
  • 12. Price Determination with Free Trade (Real) Demand Supply Price P0 Imports S0 D0 Quantity
  • 13. Price Determination with Quotas (Real) Demand Supply Price Public Imports P1 P0 Imports S0 D0 Quantity
  • 14. Impacts of Government Market Interventions, July-October, 2008 Partial Equilibrium Simulations Simulation 1 Simulation 2 (200,000 tons) (300,000 tons) Wheat Supply (mn tons/month) 0.192 0.192 4 month wheat wheat supply 0.770 0.770 Government imports (mn tons) 0.200 0.300 % change in net supply 26% 39% % change price ed = -0.35 -48.3% -61.0% New price ed = -0.35 (Birr/quintal) 349 264 % change price ed = -0.80 -25.1% -33.7% New price ed=-0.80 (Birr/quintal) 506 447 Actual real price decline: June-Oct -19.7% -19.7% Expected seasonality 8.2% 8.2% Actual real price relative to expected price -25.8% -25.8%
  • 15. Wheat Domestic and Border Prices (Birr(2006)/ quintal) 500 450 400 350 Price (Birr (2006)/quintal) 300 250 200 150 100 50 0 Month/Year White Wheat Wholesale Addis Export parity (FOB Djibouti) Import Parity
  • 16. Concluding Observations • Wheat price formation regimes have changed several times between 2000 and 2009: – For most of this period, domestic prices have NOT been determined by international border prices • Given foreign exchange rationing starting in March 2008, private sector wheat importers have had restricted access to foreign exchange – Domestic wheat prices have been above wheat import parity prices since May 2008 • Government sales of its wheat imports from July to October 2008 successfully reduced domestic market prices – Sizeable rents accrued to those with access to wheat imports at official prices
  • 17. Concluding Observations (2) • Rationing of foreign exchange has major implications beyond the wheat market… on export competitiveness, economic growth and income distribution – Restricting effective demand for foreign exchange inhibits the real exchange depreciation needed to restore equilibrium in external accounts – An appreciation of the real exchange rate leads to lower prices of exportables and non-protected importables, reducing incentives for production of tradable goods – As in the case of wheat imports, rationing of foreign exchange implies large rents for those with access to the rationed foreign exchange • Further analysis of these economy-wide effects of foreign exchange rationing, using a Computable General Equilibrium (CGE) model based on the 2004/05 EDRI SAM, is underway

×