Dynamics of Food      Prices   in Ethiopia        Tadesse Kuma           24 May 2012     Ghion Hotel, Addis Ababa       ED...
Outline Introduction Food Price Trends in Ethiopia Causes of Food Price Inflation in  Ethiopia Government Response Pl...
1. Introduction (1)   Food is a fundamental necessity to human    survival, economic and social stability;   Its availab...
Global food prices (2)  From  the 1970s until the early 2000s, food  prices on the international market remained  relativ...
Global food1: prices (3)            Fig. FAO Global Food Price                          IndexSource: FAO , 2012
Fig.2: Share household expenditures on food (4)                                            60%Pessimistic and optimistic v...
Purpose of the study                   (5)   Understand current price trends of major food    crops in Ethiopia   Explor...
2. Food price trends in  Ethiopia (1)   Ethiopia’s economic growth strategy (ADLI) and its poverty reduction    strategie...
Fig. 4: Food and non-food price index                                            (Dec. 2007=100)   (2)        350.0       ...
Price (Birr/100kgs)                                                                                                  (3)  ...
Price trends of teff and wheat                            (4)                                    Fig. 6: Price trends of t...
Price trends of maize andsorghum (5)                                Fig. 8: Price trends of Maize                         ...
Ethiopia, global & regionalprices (6)                        Fig. 10: Global and regional maize price index (Jan. 2007= 10...
Ethiopia, global & regionalprices (7)                           Figure 11: Price trends of wheat: Ethiopia vs. global and ...
Wheat: Import & export parityprices (8)                                 Fig. 12: Wheat: Import and export parity prices   ...
Price ($/MT)          0              100                    200                          300                              ...
”Granger-causality” test results(10)Leading market Null hypothesis    Follower markets F-Statistic    Probability      Vis...
3. Causes of food price    inflation        in Ethiopia (1)   Why high food price inflation in Ethiopia?     Increase in...
Oil and cereal price index (2)              Fig. 18: Addis Ababa cereal & fuel price Index                             (De...
Fuel price changes   (3)Source: FAO, 2011
Impact of increasing food price    (4)   Who are    affected the    most?       Most vulnerable        groups        (po...
4. Government responses   During 2008 food price crisis, the GoE initiated a    subsidized urban food supply programs, ca...
5. Planned                  research (1)   Collaborative effort of all partners in the    chain       EDRI envisages to ...
Planned research (2)   Justification     Policy  makers implemented broad spectrum of ad        hoc policy actions to ad...
6. Concluding remarks   Observations from trend analysis           Prices surge in 2008, started to stabilize in 2009, b...
Dynamics of Food Pricesin Ethiopia
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Dynamics of Food Prices in Ethiopia

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Ethiopian Development Research Institute (EDRI) and International Food Policy Research Institute (IFPRI), Seminar Series, May 24, 2012

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Dynamics of Food Prices in Ethiopia

  1. 1. Dynamics of Food Prices in Ethiopia Tadesse Kuma 24 May 2012 Ghion Hotel, Addis Ababa EDRI/ESSP/ASARECA
  2. 2. Outline Introduction Food Price Trends in Ethiopia Causes of Food Price Inflation in Ethiopia Government Response Planned Research Concluding Remarks
  3. 3. 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
  4. 4. 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)
  5. 5. Global food1: prices (3) Fig. FAO Global Food Price IndexSource: FAO , 2012
  6. 6. 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:
  7. 7. 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
  8. 8. 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.
  9. 9. 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
  10. 10. 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
  11. 11. Price trends of teff and wheat (4) Fig. 6: Price trends of teff Fig. 7: Price trends of Wheat (real and nominal) (real and nominal) 1200 1000 900 1000 800 Addis Ababa Addis Ababa (NP)Price (Birr/100Kgs) 800 700 Addis Ababa (RP) Prices (Birr/100Kgs) Addis Ababa (RP) 600 600 500 400 400 300 200 200 100 0 0 Oct-07 Aug-08 Jan-09 Jan-04 Jun-04 Feb-06 Jun-09 Feb-11 Apr-05 Sep-05 Apr-10 Sep-10 Nov-04 Dec-06 Nov-09 Dec-11 Jul-06 Jul-11 Mar-08 May-07 Feb-03 Apr-04 Mar-07 Oct-07 Feb-10 Apr-11 Jul-02 Sep-03 Nov-04 Jun-05 Jan-06 Aug-06 Dec-08 Jul-09 Sep-10 Nov-11 May-08 The Ethiopian economy historically characterized by low inflation until 2006.
  12. 12. Price trends of maize andsorghum (5) Fig. 8: Price trends of Maize Fig.9: Price trends of Sorghum (real and nominal) (real and nominal) 700 900 800 600 700 500 AA Addis 600 Addis Ababa Ababa (NP) (Nominal price) Prices (Birr/100Kgs) Prices (Birr/100Kgs) 400 500 AA Addis Addis Ababa Ababa (RP) 400 (Real price) 300 300 200 200 100 100 0 0 Jul-02 Mar-03 Jul-04 Jul-06 Jul-08 Jul-10 Mar-05 Mar-07 Mar-09 Nov-11 Mar-11 Nov-03 Nov-05 Nov-07 Nov-09 Oct-05 Jan-07 Jun-07 Oct-10 Jan-12 Dec-04 Dec-09 Jul-09 Mar-06 Feb-09 Mar-11 Apr-08 Aug-06 Nov-07 Sep-08 Aug-11 May-05 May-10  The divergence between nominal and real price account for inflation  Maize and sorghum prices exhibited more volatility  During second price surge in 2011, maize price exceeded its 2008 level.
  13. 13. Ethiopia, global & regionalprices (6) Fig. 10: Global and regional maize price index (Jan. 2007= 100)600 Kenya - dry maize bag 90kg bag Uganda - Maize grain Kg500 Ethiopia- Maize (white) kg Tanzania Wholesale Prices TZS/ 100 kg FAO Global - Maize (U.S. Gulf, #2 yellow, US$/Ton)400 Malawi - Retail prices in Malawi kwacha per kilogram300200100 0 Jul-07 Sep-07 Jul-08 Sep-08 Jul-09 Sep-09 Jul-10 Sep-10 Jul-11 Sep-11 Jan-10 Jan-07 Jan-08 Jan-09 Jan-11 Mar-08 Mar-07 Mar-09 Mar-10 Mar-11 May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11
  14. 14. Ethiopia, global & regionalprices (7) Figure 11: Price trends of wheat: Ethiopia vs. global and regional price index (Jan 2007 = 100) 300 250 200 150 100 Ethiopia- White Wheat Milled Kg 50 Kenya- Wheat Bag Zambia- Wheat (flour), Retail, Kwacha, 2.5 Kg FAO Global - Soft Red Winter Wheat , US Gulf (US$/Ton) 0 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Sep-09 Sep-07 Sep-08 Sep-10 Sep-11 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 May-07 May-08 May-09 May-10 May-11 Nov-07 Nov-08 Nov-09 Nov-10
  15. 15. Wheat: Import & export parityprices (8) Fig. 12: Wheat: Import and export parity prices 800 700 Wholesale price at Addis Ababa ($/MT) Price (USD/MT) 600 Import parity (Addis Ababa) 500 Export parity (FOB Djibouti) 400 300 200 100 0
  16. 16. Price ($/MT) 0 100 200 300 400 500 600 700Jan-97Jun-97Nov-97Apr-98Sep-98 price (9)Feb-99 Jul-99Dec-99 ($/MT)May-00Oct-00Mar-01Aug-01Jan-02Jun-02Nov-02Apr-03Sep-03Feb-04 Import parity (Addis Ababa) Export parity (FOB Djibouti) Jul-04Dec-04 Wholesale price at Addis AbabaMay-05Oct-05Mar-06Aug-06Jan-07Jun-07Nov-07Apr-08Sep-08Feb-09 Jul-09Dec-09May-10 Fig. 13: Maize: Import and export parity price Maize: Import & export parityOct-10Mar-11Aug-11Jan-12
  17. 17. ”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
  18. 18. 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
  19. 19. 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
  20. 20. Fuel price changes (3)Source: FAO, 2011
  21. 21. 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
  22. 22. 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.
  23. 23. 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
  24. 24. 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.
  25. 25. 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

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