Persistence of high food prices in Eastern Africa: What role for

policy?

By

Joseph Karugia,

Coordinator

ReSAKSS-ECA

Outline

• Introduction

• Food Price Situation in ESA

• Regional Dimensions

• Recommended Policy Options

Introduction (1)• Global food price index (FPI) embarked on a

downward spiral by July 2008 and remained low and stable for some time

• Domestic FPI in Eastern Africa (EA) region on the other hand continued to increase after food crisis, notably in Kenya, Tanzania, Uganda, Ethiopia and Djibouti

• In the first half of 2010, global and domestic food prices eased but remained higher than their historical trends

Introduction (2)• The decline did not present any immediate

relief to the food crises – largely influenced by good weather conditions

• Both global and domestic food prices have risen to historic highs beginning January 2011

• Significant challenge to reduction of poverty and hunger

Comparing FAO Global and EA countries FPIs

Source: FAO, 2011; country statistics offices

Jan-07

Mar-07

May-07Jul-0

7

Sep-07

Nov-07

Jan-08

Mar-08

May-08Jul-0

8

Sep-08

Nov-08

Jan-09

Mar-09

May-09Jul-0

9

Sep-09

Nov-09

Jan-10

Mar-10

May-10Jul-1

0

Sep-10

Nov-10

Jan-11

Mar-11

May-110

50

100

150

200

250

300

Ethiopia- Food Total FAO GLOBAL- Food Kenya- Food & Non-Alcoholic Drink

Rwanda- Food And Non-Alcoholic Beverages Tanzania- Food Uganda- Food

Objective and Approach

• Effective policy action requires evidence based information on the magnitude and implications of price changes at the country and regional level

• Approach– Data – continuous update of trends– Consultations among policy advisers, analysts and

researchers from national, regional and international organizations

Data Source: a) FAO Commodities and Trade Division; b) Ethiopia: Central Statistical Agency; c) Tanzania: Bank of Tanzania; d)Uganda: Uganda Bureau of Statistics; e)Rwanda: RATIN; h) Kenya: Ministry of Agriculture

Maize price indices in EA and global 2007=100

Jan-07

Mar-0

7

May-0

7Jul-0

7

Sep-07

Nov-07

Jan-08

Mar-0

8

May-0

8Jul-0

8

Sep-08

Nov-08

Jan-09

Mar-0

9

May-0

9Jul-0

9

Sep-09

Nov-09

Jan-10

Mar-1

0

May-1

0Jul-1

0

Sep-10

Nov-10

Jan-11

Mar-1

1

May-1

10

100

200

300

400

500

600

Kenya - dry maize bag 90kg bag Uganda - Maize grain Kg

Ethiopia- Maize (white) kg Tanzania Wholesale Prices TZS/ 100 kg

Rwanda- Price Data in USD/MT FAO GLOBAL- Maize (US No.2, Yellow, U.S. Gulf (Friday)) US$/Ton

Jan-07

Mar-07

May-07Jul-0

7

Sep-07

Nov-07

Jan-08

Mar-08

May-08Jul-0

8

Sep-08

Nov-08

Jan-09

Mar-09

May-09Jul-0

9

Sep-09

Nov-09

Jan-10

Mar-10

May-10Jul-1

0

Sep-10

Nov-10

Jan-11

Mar-11

May-110

50

100

150

200

250

300

350

Rwanda - Rice (Price Data in USD/MT)Ethiopia - Rice Imported KgUganda- Rice 5Kg/KgFAO GLOBAL - Rice (White Rice, Thai 100% B second grade, f.o.b. Bangkok (Wednesday)) US$/Ton Tanzania- National Average Wholesale Prices TZS/ 100 Kg

Data Source: a) FAO Commodities and Trade Division; b) Ethiopia: Central Statistical Agency; c) Tanzania: Bank of Tanzania; d)Uganda: Uganda Bureau of Statistics; e)Rwanda: RATIN; f) Zambia: Central Statistical Office (CSO) ; g) Madagascar: Institut National de la Statistique

Rice Price Indices in EA and Global 2007=100

Data Source: a) FAO Commodities and Trade Division; b) Ethiopia: Central Statistical Agency; c) Zambia: Central Statistical Office; d) Kenya: Ministry of Agriculture

Wheat Price Indices 2007=100

Jan-07

Mar-07

May-07Jul-0

7

Sep-07

Nov-07

Jan-08

Mar-08

May-08Jul-0

8

Sep-08

Nov-08

Jan-09

Mar-09

May-09Jul-0

9

Sep-09

Nov-09

Jan-10

Mar-10

May-10Jul-1

0

Sep-10

Nov-10

Jan-11

Mar-11

May-110.00

50.00

100.00

150.00

200.00

250.00

300.00

Ethiopia- White Wheat Milled Kg Kenya- Wheat Bag

Zambia- Wheat (flour), Retail, Kwacha, 2.5 Kg FAO GLOBAL- Wheat (US No.2, Soft Red Winter Wheat , US Gulf (Tuesday)) US$/Ton

Data Source: a) FAO Commodities and Trade Division; b) Ethiopia: Central Statistical Agency; c) Tanzania: Bank of Tanzania; d)Uganda: Uganda Bureau of Statistics; e)Rwanda: RATIN; f) Zambia: Central Statistical Office (CSO) ; g) Kenya: Ministry of Agriculture

Bean Price Indices 2007 = 100

Jan-07

Mar-07

May-07Jul-0

7

Sep-07

Nov-07

Jan-08

Mar-08

May-08Jul-0

8

Sep-08

Nov-08

Jan-09

Mar-09

May-09Jul-0

9

Sep-09

Nov-09

Jan-10

Mar-10

May-10Jul-1

0

Sep-10

Nov-10

Jan-11

Mar-11

May-110

50

100

150

200

250

300

350

Zambia- Dried Beans 1Kg Ethiopia- Hoarse Beans KG

Uganda- Dried Beans (yellow) Kg Kenya- beans canadian wonder bag (Whole sale) 90 kg bag

Tanzania- National Average Wholesale Prices TZS / 100 Rwanda- Beans (Price Data in USD/MT)

FAO GLOBAL- Soybeans (US No.1, Yellow, U.S. Gulf (Friday)) US$/Ton

Data Source: a) FAO Commodities and Trade Division; b) Ethiopia: Central Statistical Agency; c) Zambia: Central Statistical Office; d) Rwanda: National Statistical Institute; e) Uganda: Uganda Bureau of Statistics

Meat Price Indices 2007=100

Jan-07

Mar-07

May-07Jul-0

7

Sep-07

Nov-07

Jan-08

Mar-08

May-08Jul-0

8

Sep-08

Nov-08

Jan-09

Mar-09

May-09Jul-0

9

Sep-09

Nov-09

Jan-10

Mar-10

May-10Jul-1

0

Sep-10

Nov-10

Jan-11

Mar-11

May-110

50

100

150

200

250

Rwanda - Meat Price Index FAO GLOBAL -Bovine Meat (Argentina, frozen beef cuts, export unit value) US$/Ton

Ethiopia -Beef kg Zambia -Mixed Cut 1Kg

Uganda -Meat (beef) Kg

Data Source: a) FAO Commodities and Trade Division; b) Ethiopia: Central Statistical Agency; c) Zambia: Central Statistical Office; d) Uganda: Uganda Bureau of Statistics

Milk Price Indices 2007=100

Jan-07

Mar-0

7

May-0

7Jul-0

7

Sep-07

Nov-07

Jan-08

Mar-0

8

May-0

8Jul-0

8

Sep-08

Nov-08

Jan-09

Mar-0

9

May-0

9Jul-0

9

Sep-09

Nov-09

Jan-10

Mar-1

0

May-1

0Jul-1

0

Sep-10

Nov-10

Jan-11

Mar-1

1

May-1

10

50

100

150

200

250

Zambia- Fresh Milk (Pasteurised) Local 500Ml

Uganda- Milk (Fresh) Ltr

Ethiopia- Cow Milk (Unpasteurized) Ltr

FAO GLOBAL - Dairy_Whole Milk Powder (Oceania, indicative export prices, f.o.b.) US$/Ton

Jan-07

Mar-0

7

May-0

7Jul-0

7

Sep-07

Nov-07

Jan-08

Mar-0

8

May-0

8Jul-0

8

Sep-08

Nov-08

Jan-09

Mar-0

9

May-0

9Jul-0

9

Sep-09

Nov-09

Jan-10

Mar-1

0

May-1

0Jul-1

0

Sep-10

Nov-10

Jan-11

Mar-1

1

May-1

10

50

100

150

200

250

300

Uganda - Sorghum Grains Kg Tanzana - Sorghum per 100 Kg

Kenya - sorghum 90 kg Bag FAO GLOBAL - Sorghum (US No.2, Yellow, U.S. Gulf (Friday)) us$/Ton

Data Source: a) FAO Commodities and Trade Division; b) Tanzania: Bank of Tanzania; c)Uganda: Uganda Bureau of Statistics; d) Kenya: Ministry of Agriculture

Sorghum Price Indices 2007=100

Data Source: a) Tanzania: Bank of Tanzania; b)Uganda: Uganda Bureau of Statistics; c)Zambia: Central Statistical Office (CSO) ; d) Kenya: Ministry of Agriculture

Irish Potatoes Price Indices 2007=100

Jan-07

Mar-07

May-07Jul-0

7

Sep-07

Nov-07

Jan-08

Mar-08

May-08Jul-0

8

Sep-08

Nov-08

Jan-09

Mar-09

May-09Jul-0

9

Sep-09

Nov-09

Jan-10

Mar-10

May-10Jul-1

0

Sep-10

Nov-10

Jan-11

Mar-11

May-110

50

100

150

200

250

300

Uganda - irish potatoes Kg Kenya - Red Irish Potatoes 110 kg bag Tanzania - Potatoes per 100 KgZambia - Irish Potatoes 1Kg

Sweet Potatoes Price Indices 2007=100

Data Source: a)Uganda: Uganda Bureau of Statistics; b)Kenya: Ministry of Agriculture

Jan-07

Mar-0

7

May-0

7Jul-0

7

Sep-07

Nov-07Jan-08

Mar-0

8

May-0

8Jul-0

8

Sep-08

Nov-08Jan-09

Mar-0

9

May-0

9Jul-0

9

Sep-09

Nov-09Jan-10

Mar-1

0

May-1

0Jul-1

0

Sep-10

Nov-10Jan-11

Mar-1

10

50

100

150

200

250

300

350

400

Uganda - sweet potatoes Kg Kenya- Sweet potatoes 90 kg bag

Data Source: a)Uganda: Uganda Bureau of Statistics; b)Kenya: Ministry of Agriculture c) Malawi: National statistical office of Malawi

Cassava Price Indices 2007=100

Jan-07

Mar-0

7

May-0

7Jul-0

7

Sep-07

Nov-07

Jan-08

Mar-0

8

May-0

8Jul-0

8

Sep-08

Nov-08

Jan-09

Mar-0

9

May-0

9Jul-0

9

Sep-09

Nov-09

Jan-10

Mar-1

0

May-1

0Jul-1

0

Sep-10

Nov-10

Jan-11

Mar-1

10

50

100

150

200

250

300

350

400

Uganda Cassava (Fresh) Kg Kenya Cassava Fresh 98.8 Kg Bag Malawi Cassava Dried Kg

Bananas Price Indices 2007=100

Jan-07

Mar-07

May-07Jul-0

7

Sep-07

Nov-07

Jan-08

Mar-08

May-08Jul-0

8

Sep-08

Nov-08

Jan-09

Mar-09

May-09Jul-0

9

Sep-09

Nov-09

Jan-10

Mar-10

May-10Jul-1

0

Sep-10

Nov-10

Jan-11

Mar-11

May-110

50

100

150

200

250

Uganda - Matoke Bunch Kenya - Coodking bananas (Med bunch)

Data Source: a)Uganda: Uganda Bureau of Statistics; b)Kenya: Ministry of Agriculture

Pattern of price changes is mixed

• Severity of the problem differs:across countriesacross commoditiestime of the year

Change in food prices

Country

% change FPI Feb 2007-June 2007

% change FPI June 2008-Dec 2008

% change FPI Jan 2009-Dec 2009

% change FPI Jan 2010-Dec 2010

% change in commodity price

Staple food

June 2008-Dec 2008

Jan 2009-Dec 2009

Jan 2010-Dec 2010

Jan 2011-April 2011

Ethiopia 6.4 -5.6 0.1 8.7Wheat*** -9.2 -16.5 6.1 -

FAO GLOBAL 12.9 -34.0 21.7 24.1

Maize-44.2 -3.2 48.4 19.5

Kenya -1.1 5.6 4.9 7.6Maize

23.7 1.7 -35.9 66.8

Rwanda -6.3 12.5 9.0 -7.6 Beans 12.6 23.9 13.3 -2.5

Tanzania 1.0 10.3 9.2 -4.1*Maize

21.8 20.5 -26.823.5**

Uganda 1.5 11.5 20.0 0.2

Bananas

31.6 85.8 -10.3 22.6* Data available up to June 2010; ** Data up to march 2011; *** Teff is main staple food, data not available

Domestic prices are more volatile than global prices...

Country Coefficient of Variation % (maize prices)

Kenya 23.55 Uganda 17.30 Ethiopia 3.73 Tanzania 22.07 Rwanda 33.46 Global (US No.2, Yellow, U.S. Gulf) 7.06

Data source: FAOSTAT (Global), Ministry of Agriculture (Kenya), Central statistics agency (Ethiopia), RATIN (Tanzania and Rwanda), UBOS (Uganda).

Minimal transmission of global price changes to domestic markets...

Regional markets Correlation Coefficients

Nairobi: kenya -0.15

Kampala: Uganda 0.17

Dar es Salaam: Tanzania 0.14

Addis Ababa: Ethiopia -0.35

Kigali: Rwanda 0.64 Data Source: RATIN (Kenya, Uganda, Tanzania, Rwanda); Central

statistical agency (Ethiopia); FAOSTAT (Global).

Correlation coefficients vary between -1 and 1. The closer to 1, the better the integration between the markets. No global and domestic market integration

Some transmission between markets in the region (maize prices)...

+correlation coefficients = maize prices in various markets in EA region tend to move in the same direction, Domestic markets have some degree of integration among themselves, thus price changes will cause flow of food from surplus to deficit areas -exploiting a regional approach

Regional markets Kampala Nairobi

Dar es salaam Kigali

Addis Ababa

Kampala 1 0.69* 0.49* 0.38* 0.72*

Nairobi 0.69* 1 0.41* 0.61* 0

Dar es Salaam 0.49* 0.41* 1 0.55* 0.33

Kigali 0.38* 0.61* 0.55* 1 -0.12

Addis Ababa 0.72* 0 0.33 -0.12 1

Data Source: RATIN (Kenya, Uganda, Tanzania, Rwanda); Central statistical agency (Ethiopia)

*significant at the 5% significance level

Factors affecting demand for food in EA

• Population growth, rising incomes (though inequalities in income distribution make the poor very vulnerable), urbanization

• However, demand factors change only slowly and may not be responsible for the recent spikes and volatility

Factors contributing to low supply of food in EA

• Low investments in agriculture and rural development

• High prices of inputs – fertilizers, fuel, feed

• Climatic shocks

• Impacts of trade: inefficiencies, expensive imports, policies

• Disruption of supply – conflicts

Jan-07

Mar-07

May-07

Jul-07

Sep-07

Nov-07

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

0

50

100

150

200

250

300

Uganda Motor Spirit Premium (PMS) Uganda Diesel (AGO) Kenya -Motor Gasoline Premium (Ksh per ltr) Kenya - Light Diesel Oil (GASOIL) (Ksh per ltr)world Crude oil prices

Data Source: a) world: World: US energy information administration independent statistics and analysis; b) Uganda: Bank of Uganda; c) Kenya: Kenya National Bureau of statistics

Fuel Price Indices 2007=100

Apr-Jun 2007

Jul-S

ep 2007

Oct-Dec

2007

Jan-M

ar 2008

Apr-Jun 2008

Jul-S

ep 2008

Oct-Dec

2008

Jan-M

ar 2009

Apr-Jun 2009

Jul-S

ep 2009

Oct-Dec

2009

Jan-M

ar 2010

Apr-Jun 2010

Jul-S

ep 2010

Oct-

Dec 2010

Jan-M

ar 2011

0

100

200

300

400

500

600

700

800

DAP Phosphate rock Potassium chloride TSP Urea

Data Source: World Bank

World Fertilizer Price indices 2007=100

Yields are low and decreasing or stagnant

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Burundi Comoros Djibouti Ethiopia Kenya

Malawi Rwanda Sudan Swaziland Uganda

United Republic of Tanzania Zambia Zimbabwe

Mai

ze y

ield

Hg/

ha

Differential impact on householdsPoor are hit hardest

Rural net buyers more affected

Net sellers less affected

Urban poor depend on markets for food supplies

What levers to pull?

• Increase production?– Productivity decline, climatic factors,…

• Control demand?– Population growth, income inequalities, ...

• Many slow to respond; >3 years?

Regional approach offers better prospects

• Exploit diversity in the region

Heterogeneity in production

ESA harvesting timeline

Source: Data: FEWSNET,2008

Most action is in domestic and regional markets…

• But, there are serious barriers to trade: wasteful, high transaction costs

Busia -Uganda Busia -Kenya

On going policy response measures to high food prices in EA region

SAFETY NETS FOR THE VULNERABLE

Food subsidies Cash transfer Food for work and food for training Food ration/stamp; vouchers School feeding

FOOD SUPPLY AND FOOD TRADE

Increase supply using food grain stocks Increase supply via imports Reduce taxes on food Price controls/consumer subsidies Reduction of tariffs and custom fees on food imports Restricted or banned export

AGRICULTURAL PRODUCTION

Agricultural input subsidies, mostly fertilizer and seeds Increase administered prices for producers Incentives for expanding production (credit) Lower import tariffs for inputs e.g. fertilizer

Consistent with longer run policies to improve food security

Some concerns relating to longer run food security Likely to create problems for longer run food security depending on duration and targeting Highly likely to create problems for longer run food security and/or create serious

problems for neighbouring countries

Sources; World Bank, 2008; FAO, 2008; Karugia et al, 2009; Okello, J.J, 2009; www.wfp.org; www.fao.org

Despite the various policy actions adopted in EA region to curb rising food prices, the region has continued to experience persistent high and volatile food prices

Conclusions

• Changes in global food prices are not transmitted to domestic markets

• Regional response offers opportunities to address the food price crisis

• Food price crisis offers opportunities for agricultural development through increased domestic production, regional trade and integration [Paul Romer: “A crisis is a terrible thing to waste”]

Recommended Policy Options

Protect the vulnerable

• Priority Actions– Targeted food subsidies and cash transfers where

markets are working– Targeted food aid where markets are not working– Reduce taxes on food grains– Design and targeting –key to success

• For rural poor, in addition provide production support – inputs, credit, technologies

Exploit regional diversity and facilitate regional trade

• Priority Actions

• Remove export bans

• Eliminate NTBs

• Simplify trade

• Upgrade, maintain infrastructure and facilities on the main trade corridors

Enhance supply response

• Priority Actions• Make agricultural inputs affordable

• Build on best bet technologies

• Exploit economies of scale in input procurement and facilitate trade in inputs

• Pilot innovative risk management strategies – warehouse receipt system, index based insurance systems

Strengthen and use regional institutions for preparedness and response

• Priority Actions:• Strengthen market information &

intelligence (e.g. RATIN,FEWSNET, EAGC)

• Institutional frameworks for preparedness, response, and learning

THANK YOU