It is well recognised that ensuring access to adequate food is beyond simple food security. It has great implication for as low level of infant (adult) mortality, low level of malnutrition; good health status, strong and active citizen and this will help that country to grow faster as it has capable citizens that can produce effectively and efficiently.
FAO Food Price Index (FFPI) averaged 214 points in April 2012, down 1.4% from March. The decline was largely driven by falls in sugar and dairy prices followed by cereals which more than offset strong gains in oils and a slight rise in meat prices. The FFPI moved up steadily in the first quarter of 2012 and while it fell in April, it still remained above the December 2011 level, which was the lowest in over a year.The FAO Cereal PriceIndex averaged 224 points in April, down 2% from March. Maize quotations declined most, by 2.5 percent, reflecting good production prospects. Wheat prices fell slightly, by just over 1 percent, while rice values were also down marginally. Compared to April last year, the index was down 16 percent.
Cereal production and marketing are the means of livelihood for millions of households in Ethiopia. It is the single largest sub-sector within Ethiopia’s agriculture, far exceeding all others in terms of its share in rural employment, agricultural land use, calorie intake, and contribution to national income. Over the past half century, cereals production and marketing has influenced agricultural policy thinking of all three political regimes in Ethiopia.
As figure 15 indicate, domestic price of maize remained cheaper since food price increase in 2007. In 2008 it spiked and lay above IPP (get more expensive. This tells private sector has an icnetive to import maize. However, it was not possible due to foreign exchange shortage.
Cereals price dynamics
Cereals price dynamics in Ethiopia Tadesse Kuma EDRI Improved evidence towards better food and agricultural policies in Ethiopia November 02, 2012 Hilton Hotel, Addis Ababa 1
Outline• Introduction and Purpose of Study• Food Price Trends in Ethiopia• Causes of Food Price Inflation in Ethiopia• Government Response• Concluding Remarks
1. Introduction (1)• Food is a fundamental necessity to human survival, economic and social stability;• Any shock in the food production and prices directly or indirectly affects millions in developing countries;• Global food price trends – Food prices on the international market remained relatively stable until early 2000s; – However, it began to soar and by mid-2008 it had reached its highest level in 30 years (FAO, 2011).• Ethiopia experienced abnormally high food price hike in the recent years;
Global food prices Fig. 1: FAO Global Food Price IndexSource: FAO , 2012
Introduction (3)Purpose of the study• Understand current price trends of major cereals in Ethiopia• Explore major causes of food price hike in Ethiopia• Discuss future challenges and possible policy optionsMethod of analysis:• Analysis of monthly average price trends for major cereals
2. Food price trends in Ethiopia (1)• Although there has been promising achievement in the agricultural sector performance, food price remained so high;• Understanding cereal price movement has important implication for national food security in Ethiopia; – Contribution for overall GDP (30%), food expenditure (40%), calories intake (60%), agricultural GDP (62%), .... (CSA, 2010)• Cereal price intervention has remained a predominant consideration in food policy making in Ethiopia (e.g., Commodity Marketing Board (CMB), AMC, EGTE);
Fig. 2: Food and non-food price index (Dec. 2007=100) 350.0 Cereal price index 300.0 General price index 250.0 Food price index 200.0Index Cereals price index 150.0 Non-food price index 100.0 50.0 0.0 Nov-06 Nov-99 Apr-99 Aug-01 Apr-06 Aug-08 May-03 May-10 Jan-01 Mar-02 Jan-08 Mar-09 Sep-98 Sep-05 Jul-97 Feb-98 Dec-03 Jul-04 Feb-05 Dec-10 Jul-11 Feb-12 Jun-00 Oct-02 Jun-07 Oct-09 Source: CSA, 2012
3. Causes of food price inflation in EthiopiaWhy high food price inflation in Ethiopia? – Little consensus on the relative importance of factors: Increase in domestic demand, expansionary monetary policy, a shift from food aid to cash transfers, high investments in infrastructure; – Overall inflation in Ethiopia partly associated with agriculture production and food supply situation in the global economy; – 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; – Economic growth increasing demand, urbanisation, changing consumption pattern; – Hoarding speculation by traders/millers/retailers/farmers
Impacts on the poor• Large negative impacts on poor net consumers of food, because food is a large part of household budget (Eg., food account for > 60% HH exp. ).• Potentially positive impact on net producers of food, if farmers have access to agricultural inputs and markets.
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): subsidized food supply stabilized market prices of cereals but of price cap is not very clear.
5. Concluding remarksObservations from trends:• Ethiopia has registered considerable economic growth in the last nine years;• In Ethiopia, food prices remained high compared to many countries;• Excessive price volatility;• Dominance of some of markets over others (e.g., Addis Ababa)
5. Concluding remarks• Suggested policy choices: - Short term: • Prudent macroeconomic policy • Understanding market structure and behavior (wholesale market); • Protecting the most vulnerable through the expansion of social protection programs (PSNP, and others). - Medium term: • Rising domestic agricultural production/supply and productivity; • Stimulating private investment in agriculture; • Improving competitiveness of agricultural markets