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.
the method is sensitive to the choice of lag length for the cross-correlations and the test can’t tell you the directionality of causality, only the presence or absence of it;
Dynamics of Food Pricesin Ethiopia
Dynamics of Food Prices in Ethiopia Tadesse Kuma 24 May 2012 Ghion Hotel, Addis Ababa EDRI/ESSP/ASARECA
Outline Introduction Food Price Trends in Ethiopia Causes of Food Price Inflation in Ethiopia Government Response Planned Research Concluding Remarks
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
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)
Global food1: prices (3) Fig. FAO Global Food Price IndexSource: FAO , 2012
Fig.2: Share household expenditures on food (4) 60%Pessimistic and optimistic views on food security andprices Pessimistic view : population, climate change, soil degradation, powerdifference Jongsoo Shin, 2012 Source:
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 solutionsMethod of analysis: Descriptive analysis, trends, and Granger causality
2. Food price trends in Ethiopia (1) 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 Fig. 3: Percentage share of cereals in the economy 100 80 80 60 62 60 60 Percentage 40 40 30 20 0 Ocerall GDP Food Calories intake Agricultural Rural Total cultivated expenditure GDP employment area Source: Shahid, 2010 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.
Fig. 4: Food and non-food price index (Dec. 2007=100) (2) 350.0 Cereal price index 300.0 250.0 General price index Food price indexIndex 200.0 Cereals price index 150.0 Non-food price index 100.0 50.0 0.0 Jan-11 Jul-11 Jan-06 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-07 Jan-08 Jan-09 Jan-10 Jan-12 Jul-01 Jul-97 Jul-98 Jul-99 Jul-00 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Source: CSA, 2012
Price (Birr/100kgs) (3) 200 400 600 800 0 1000 1200Jan-02Jun-02Nov-02Apr-03Sep-03 TeffFeb-04 Jul-04Dec-04 Maize white Wheat whiteMay-05Oct-05 Sorghum whiteMar-06Aug-06Jan-07Jun-07 Ababa marketNov-07Apr-08Sep-08Feb-09 Jul-09Dec-09May-10 Fig. 5: Nominal cereal price trends for AddisOct-10Mar-11 Price trends of major cerealsAug-11Jan-12
”Granger-causality” test results(10)Leading market Null hypothesis Follower markets F-Statistic Probability Vise versa Shasehemene 13.0662 1.5E-05 Yes, 5% sigTeff market Teff price of AA Bahir Dar 15.5089 2.6E-06 No, very weak market does not Jimma 19.3666 1.9E-07 No Granger Cause Mekele 25.6120 4.2E-09 No, very weakAddis Ababa Dire Dawa 18.4743 3.5E-07 No Shashemene 7.23532 0.00143 Yes, 1% sigWheat market Wheat price of AA Jimma 15.1370 3.8E-06 Yes, 10% sig market does not Mekele 10.9383 7.7E-05 NoAddis Ababa Granger cause Dire Dawa 9.35685 0.00026 No Shashemene Yes, 1% sigMaize market Maize price of AA 2.98561 0.05698 stronger market does not Bahir Dar 12.0024 3.3E-05 Yes, 1% Sig.Addis Ababa Granger cause Jimma 5.90576 0.00427 Yes, 10% sig. Mekele 3.59248 0.03272 Yes, 1% sig Dire Dawa 8.21027 0.00063 No 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
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
Oil and cereal price index (2) Fig. 18: Addis Ababa cereal & fuel price Index (Dec. 2006 = 100) 350 300 250Index 200 150 100 Fuel Price Index 50 Average cereal Price Index 0 Sep-… Sep-… Sep-… Sep-… Dec-… Dec-… Dec-… Dec-… Dec-… Mar-10 Mar-07 Mar-08 Mar-09 Mar-11 Jun-07 Jun-08 Jun-09 Jun-10
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
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.
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
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.
6. Concluding remarks 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