Food Prices, Consumption and Nutrition in Ethiopia:

Implications of Recent Price Shocks

Paul DoroshInternational Food Policy Research Institute (IFPRI)

(Ethiopia Strategy Support Program, ESSP-2)

Institute of Medicine Workshop onMitigating the Nutritional Impacts of the Global Food Crisis

July 14-26, 2009

Outline of Presentation

• Background: Geography, Economy, Nutrition

• Determinants of Food Prices in Ethiopia– Nominal and real price movements

– Changing determinants of wheat prices over time

• Implications for household consumption and nutrition– Household food consumption patterns

• Safety nets

• Concluding observations

Topography in Ethiopia varies widely, even across short distances

Annual rainfall varies across spaceRainfall is highest and least variable in the western part of the country

and the western slopes of mountains

Population is concentrated along the primary road network

But only 16 percent of the population resides in urban areas (cities of 5,000 or more people)

Source: Schmidt (2009).

Much of Ethiopia is remote (>10 hours travel time to a city of 50k or more people)

45% of the population lives >5 hours from a city of 50k+

Ethiopia: Cereal Production and Real Prices

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Re

al P

rice

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x (2

00

0/0

1 =

10

0)

Pro

du

ctio

n (

mn

to

ns)

Cereals (mehrer) Total Cereals Real Price Index

Source: Dorosh and Ahmed (2009); Ethiopia Central Statistics Agency (CSA) and Ethiopian Grain Trade Enterprise (EGTE) data.

Measures of Malnutritionfor Ethiopia and Kenya

Proportion of

undernourished in the

population (%) 1/

Prevalence of

Underweight in

children under 5 years

(%) 2/

Under 5 Mortality

rate (%) GHI 2009

Ethiopia 2003-2007 2005 2007

46.0 34.6 11.9 30.8

Kenya 2003-2007 2003 2007

32.0 16.5 12.1 20.2

Notes: 1/ Proportion of the population with calorie deficiency. Average over a three year period from FAO. 2/ Figures shown are for the latest years available for the period 2002-2007. Based on the WHO Child Growth Standards revised in 2006.GHI denotes Global Hunger Index, an unweighted average of the other three measures of malnutrition shown in the table.

Ethiopia: Poverty Trends1995/96 to 2004/05

Source: Ethiopia Central Statistics Agency, Household Income, Consumption and Expenditure Survey (HICES) data.

1995/96 1999/2000 2004/05

Po P1 P2 Po P1 P2 Po P1 P2

Rural 47.5 13.4 5.3 45.4 12.2 4.6 39.3 8.5 2.7

Urban 33.2 9.9 4.1 36.9 10.1 3.9 35.1 7.7 2.6

National 45.5 12.9 5.1 44.2 11.9 4.5 38.7 8.3 2.7

Notes: P0 denotes % of population below the poverty line; P1 measures the average depth of poverty; P2 is a measure of the severity of poverty.

Ethiopia: Nominal Cereal Prices (Wholesale, Addis Ababa)

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Pric

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irr/

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inta

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Maize Mixed Teff Wheat Sorghum

Source: Ethiopian Grain Trade Enterprise (EGTE) data.

Ethiopia: Real Cereal Prices (Wholesale, Addis Ababa)

Source: Ethiopian Grain Trade Enterprise (EGTE) data deflated by the national CPI (December 2006 = 100).

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n-06

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Pric

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irr

(200

6)/q

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tal)

Month/Year

Maize Mixed Teff Wheat Sorghum

Wheat Domestic and Border Prices (US$ / ton)

0

100

200

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Pri

ce ($/to

n)

Month/Year

Wholesale Price Addis Import Parity Addis Export Parity Addis

Wheat Domestic and Border Prices (Birr/ quintal)

0

100

200

300

400

500

600

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800

Pri

ce (B

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Month/YearWhite wheat wholesale Addis Import Parity Import Sales Price

Determinants of Wheat PricesFour 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

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; Dorosh and Ahmed (2009).

Real Wheat Prices and Import Parity 1998-99 to 2008-09*

* October 2008 – April 2009.Source: EGTE data; Dorosh and Ahmed (2009).

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%

Summary: Wheat Markets

• 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

Ethiopia: Calorie Consumption2004/05

Source: Calculated from Ethiopia Central Statistics Agency (CSA) Household Income, Consumption and Expenditure Survey (HICES) 2004/05 data; Seyoum et al. (2009).

Teff Wheat

Other

Cereals

Enset/ Root

Crops

Pulses/

Oilseeds

Animal

Products Other Total

National 248 266 832 234 214 76 215 2,086

Urban 588 181 495 64 285 85 240 1,937

Rural 192 280 887 262 203 75 211 2,110

Expenditure

Quintiles

Q1 173 215 708 174 148 61 192 1,672

Q2 224 259 812 208 192 67 202 1,964

Q3 225 275 910 256 213 81 205 2,163

Q4 273 304 907 252 247 74 220 2,277

Q5 349 280 828 282 273 98 258 2,367

Ethiopia: Calorie Consumption2004/05

Urban

Teff

Wheat

Other Cereals

Enset/ Root Crops

Pulses/ Oilseeds

Animal Products

Other

Source: Calculated from Ethiopia Central Statistics Agency (CSA) Household Income, Consumption and Expenditure Survey (HICES) 2004/05 data; Seyoum et al. (2009).

Livelihoods Analysis

• Livelihoods Integration Unit (LIU)– Part of Government of Ethiopia’s early warning system

within the Ministry of Agricultural and Rural Development

– Baseline data on 173 livelihood zones using key informant questionnaires

– Includes calculations of impacts of shocks on household access to food based on changes in prices or losses of production

– Able to highlight sub-regional food security issues that may not be captured in regional analyses (e.g. effects of production losses of non-cereal food crops such as ensetand sweet potatoes)

See http://www.feg-consulting.com/spotlight/feg_liu_pp8opt.pdf

Productive Safety Net Program (PSNP)

• PSNP introduced 2005– Initially covered 264 chronically food insecure woredas in four

regions (out of approximately 500 woredas in Ethiopia)– Pastoralist areas initially excluded – Two sub-programs

• Public works (PW) schemes: pays workers in cash or in-kind for their labor on labor-intensive projects designed to build community assets

• Direct support (DS): provided to labor-scarce households including those whose primary income earners are elderly or disabled

• Other Food Security Programme (OFSP)– Provides at least one of several productivity-enhancing

transfers or services, such as access to credit and agricultural extension services

– Designed to encourage households to increase income generated from agricultural activities and to build up assets.

– Covered one-third of PSNP recipients in 2006 baseline survey

Impact of the PSNP• An evaluation of the PSNP in 2006 showed impacts varied

by household participation• Households that received at least half of the amount of

transfers it should have received according to the design of the program:– Had a reduced likelihood of having a very low caloric intake– Increased their mean calorie availability by 183

kcals/person/day

• Households that also received access to any component of the OFSP are more likely to– Be food secure (increase mean calorie availability by 230

kcals/person/day from 2347 to 2577)– Borrow for productive purposes– Use improved agricultural technologies– Operate nonfarm own business activities

Source: Gilligan, Hoddinott and Tafesse (2008).

Concluding Observations• Over the last two decades, Ethiopia has made impressive

strides in enhancing food security by – Increasing domestic production– Investing in infrastructure to improve markets and– launching the Productive Safety Net Program (PSNP)

• Recent price shocks in Ethiopia are not, in general, due to increases in food prices in international markets

• Many households remain vulnerable to food production shocks due to droughts or disease that may be specific to small regions within the country

• Food security could be further enhanced through– Continued high growth in agricultural production and

incomes of poor households– Expansion of the Other Food Security Program (OFSP) and– Targeted nutrition efforts