The Ukraine Crisis & African Economies - Transmission of Global Price Shocks to Local Commodity Markets in Rwanda

1. The Impact of the Ukraine-Russia Crisis on Commodity
Prices in Local Markets in Rwanda
Paul Guthiga
Senior Scientist & Technical Lead ReSAKSS-ESA, AKADEMIYA2063

2. https://akademiya2063.org/publications/Ukraine%20Crisis%20and%20African%20Countries/Brief-13-AKADEMIYA2063%20Ukraine%20Crisis%20Brief%20Series.pdf

3. Introduction [1]
 The war in Ukraine caused a disruption in global trade, whose impacts have been
transmitted (to a varying extent) to domestic markets across the continent
 Why is the crisis of significance to the continent?
 The actors in the conflicts are major players in gobla grain trade (25% of wheat; 15% of maize)
 They are major exporters of fertilizer, oil and natural gas
 Many countries in the continent rely on imports to meet local demand
 Even for those that do not import directly from Russia/Ukraine, disruption is felt through
‘contagion effect’ transmitted through primary trading countries
 Measures need to be taken to protect the welfare of the affected people
 Changes in prices were expected to be higher after the war and likely to remain
high in the medium term

4. Introduction [2]
 The impact of trade disruptions is both direct and indirect through the dense
network of transborder imports and re-exports from countries that are
trading directly with crisis countries
 The rise in price could also be driven by rise in shipping and transport costs
driven by rise in fuel prices
 A decline in available supplies due to export restrictions by exporting
countries &
 Restrictions (hoarding) by re-exporting countries that would drive prices
further upwards

5. Data & Method [1]
 Weekly price data for select basic food commodities (rice, sugar, wheat flour, cooking
oil) and fuel (Petrol, Diesel and Cooking gas [LPG]) were analyzed
 Data is recored 5 times in a month [recored in Rwf/kg for dry food commodities and
Rwf/liter for cooking oil and fuel]
 The brief was prepared using an initial data set (Jan-May 2022); recently data upto to
December 2022 has been obtained
 Source: National Institute of Statistics of Rwanda (NISR) and Ministry of Agriculture
and Animal Resources (MINAGRI)/Esoko data platform
 Analysis focused on four (4) markets:
 Two markets in urban setting i.e., Nyabugogo (in Kigali district), and Musanze (in Musanze district)
&
 Two markets in rural i.e., Nyamarambi (in Kirehe district) and Gasarenda in (Nyamagabe district)

6. Data & Method [2]
 The analysis involves tracking changes in price since January 2022 till end of
May 2022 and comparing those changes with the observed changes in global
prices of same commodities (or their derivatives)
 The global prices were obtained from the World Bank Commodity Market
Outlook data which estimates monthly prices for around 46 commodities for
specific markets
 The analysis shows how prices in local markets have responded to global
changes and the extent to which these changes compare across local
markets and with the global price movements

7. Findings: Overview on food imports dependence
 Rwanda relies largely on imports to meet its demand for wheat, rice, sugar and
cooking oil
 Sugar imports are mainly sourced from the Southern Africa region including Malawi,
Zambia, Eswatini and South Africa; outside the region, India is a leading import
country for Rwanda’s sugar imports
 About 60% of rice consumed in Rwanda is imported; about 50% is imported from
Tanzania while a substantial amount is imported from Asian countries such as
Pakistan
 60% of cooking oil is also imported

8. Findings: Food price changes in urban markets [1]
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Figure 1: Weekly Food Price Trends in Kigali
Sugar Wheat flour Rice Cooking oil
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January Feb March April May
Figure 2: Weekly Food Price Trends in Musanze
Sugar Wheat flour Rice Cooking oil
 Notable increase in price for most commodities from March 2022 was observed in the 2 urban
markets
 For both markets, the prices of food commodities rose slightly during the March-April period but
were flatter during the month of May
 The rise in the price of wheat was expected because Russia has been a major import source for
Rwanda;
 In 2019 imports from Russia accounted for 49% of the total (176,655 MT) of wheat imports into the country

9. Findings: Food price changes in urban markets [2]
 Wheat prices rose from (Rwf 20,000 for a 25Kg bag) before the Russia-Ukraine crisis rose to Rwf
25,000 in March 2022
 The rise in price was attributed directly to the Russia-Ukraine crises and the government was
reported to be seeking for alternative sources of wheat imports
 In the urban markets of Kigali and Musanze the price of wheat flour rose by 36% and 33%
respectively by the last week of May compared January
 The price of sugar rose significantly in both urban markets (Kigali at 34%, Musanze 36%) by May
compared to January
 The price of rice rose slightly by 12% and 16% in urban markets of Kigali and Musanze respectively
over the Jan-May period
 In Kigali & Musanze while the price of cooking oil increased during the month of April it dropped in
May to levels below those recorded in the first week of January

10. Findings: Food price changes in urban markets [3]
 By Dec 2022, prices staple commodities were significantly higher than at the beginning of the year;
 Sugar = +12%
 Wheat flour= +100%
 Rice= +47%
 Cooking Oil= +18%
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January Feb March April May June July August September October November December
Figure 3: Kigali-Food weekly (Jan-Dec 2022)
Sugar Wheat flour Rice Cooking oil

11. Findings: Food price changes in rural markets [4]
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January Feb March April May
Figure 4: Weekly Food Price at Nyakarambi Market
Sugar Wheat flour Rice Cooking oil
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January Feb March April May
Figure 5: Weekly food prices, Gasarenda Market
Sugar Wheat flour Rice Cooking oil
 A similar trend in wheat price increase was recorded for the rural market in Kirehe district
 However, a decline of 22% in price of wheat flour was recorded in Nyamagabe district from Rfw
900/kg in January to Rwf 700/kg in May 2022
 The decline in prices in the local rural market in Nyamagabe though surprising is not unexpected
because the district is one of wheat producing areas

12. Findings: Food price changes in rural markets [5]
 The price of sugar rose significantly in Kirehe (60%) and Nyamamgabe (44%)
markets by May compared to January
 Over the same period however, the price of cooking oil rose slightly in rural
markets of Kirehe (by 1%) and in Nyamagabe (by 9%)
 The price of rice rose by 22% and 15% in the rural markets of Kirehe and Nyamagabe
over the Jan-May period

13. Findings: Food price changes in rural markets [6]
 By Dec 2022, prices staple commodities were significantly higher than at the beginning of the year;
 Sugar = +34%
 Wheat flour= +41%
 Rice= +56%
 Cooking Oil= +14%
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January Feb March April May June July August September October November December
Figure 6: Weekly Food Price Trends at Nyakarambi Market (Jan-Dec 2022)
Sugar Wheat flour Rice Cooking oil

14. Findings: Trends in Weekly Energy Prices for Kigali City [7]
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Figure 7: Weekly prices of fuel and LPG in Kigali (Jan-May 2022)
Cooking gas (LPG) Diesel Petrol
 The price of fuel (petrol & diesel) and cooking gas
were the same in different markets because prices
are regulated by the Rwanda Utilities Regulatory
Authority (RURA) and are only reviewed every
two months
 For illustration we used the prices observed in
Kigali to analyze the changes over time from week
1 in January to week 5 in May as summarized in
Figure 7
 Since May 2021, fuel prices have been stabilized by
the government of Rwanda that decided to
forego some taxes on imports of select petroleum
products

15. Findings: Trends in Weekly Energy Prices for Kigali City [8]
 The decision was also taken in order to avoid the negative consequences of
exaggerated fuel price increase that would cause a generalised price increase
(inflation) and therefore decelerate the speed at which Rwanda's economy was
recovering from the impact of Covid-19 outbreak
 While the prices of the fuel remained relatively stable; there were two instances of
rise in price (Week 1 of March and Week 1 of April) instituted by the RURA in
response to the changes of oil prices in the global market
 Overall, the price of petrol, diesel and cooking gas increased by 11%, 20% and 27%
respectively in Kigali by last week of May compared to first week of January 2022

16. Findings: Trends in Weekly Energy Prices for Kigali City [8]
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January Feb March April May June July August September October November December
Figure 8: Weekly Fuel Prices in Kigali (Jan-Dec 2022
Cooking gas (LPG) Diesel Petrol
 Price of fuel rose significantly between January and December 2022;
 Cooking gas = +19%
 Diesel = +39%
 Petrol = +30%

17. Findings: Comparing Price Changes in Local and Global Markets [9]
Commodity Global price
change (%)
Change in urban
market (Kigali)
Change in rural
market (Kirehe)
Wheat +40% +36% +26%
Sugar +3% +34% +60%
Rice +10% +12% +22%
Cooking oil +19% -12% +3%
Fuel Crude Oil- +31% Diesel- +20%
Petrol- +11%
Diesel- +20%
Petrol- +12%
Liquefied
petroleum gas
+28% +27%
 Changes in global prices of
commodities are to a large extent
similarly reflected in local markets in
Rwanda but some non-
correspondences are also noted
especially for cooking oil whose
price declined in urban markets in
Rwanda (but by December the price
rose by 18%)
 The prices of sugar were also much
higher than changes at the global
level
 Global wheat prices increased by
40% (Jan-May), while in Rwanda a
corresponding rise of 36% is
observed for wheat flour in urban
Table 1: Summary of Price Changes: Comparison between Local
Markets and Global Averages (Jan-May 2022)

18. Findings: Comparing Price Changes in Local and Global Markets [10]
 Price of rise rose by 10% in the world market while in Kigali the prices have also risen by almost
the same measure of 12%
 The energy prices have risen in the same direction and partly similar magnitude; a 31% and 28%
rise in global price of crude oil and LPG, respectively, is reflected in rise of diesel and petrol
prices of 20% and 11% in Kigali respectively and of 27% in the price of cooking gas, again in Kigali
 It appears from the above that there a strong transmissibility of changes in global prices to local
markets and vulnerability of Rwanda to international shocks
 Therefore, local policies and strategies aimed at dampening the effects of such shocks to local
consumers are required

19. Conclusions and implications [1]
 The brief assessed the impact of the Russia-Ukraine crisis on commodity prices in local markets in
Rwanda and compared them to changes in global prices
 The brief found that there has been a general rise in price of food and energy commodities in Rwanda
reflective of similar changes at the global level
 For some commodities like sugar, local prices rose more sharply than the global prices with some
difference in price change patterns between rural and urban areas
 The rise in prices is of concern to policy makers because of the negative impact on the welfare of the
poor households; Rice, sugar, cooking oil and wheat flour are basic food commodities

20. Conclusions and implications [2]
 One of the short-term solutions is to provide targeted social protection support to most vulnerable
households facing higher food and energy prices similar to what Rwanda implemented during the
COVID-19 crisis
 In the long term, measures that facilitate freer intra-regional trade should be adopted and
implemented to allow food commodity trade between countries in the continent
 In addition, boosting local food production and productivity in the long term is a good strategy for
dealing with external shocks in the global food markets
 Long term investments in energy saving, energy efficiency improvements are also required
 The government should continue and intensify funding to agriculture especially on programs aimed
at increasing production and productivity to be prepared to offset future global shocks on domestic
food prices

21. References
1. Badiane, O.; I. Fofana; L. M. Sall; and B. Cesay. 2022. Contagion and Exposure of African Countries to
Global Wheat Trade Disruptions. Ukraine Crisis Brief Series, No.1. Kigali and Dakar. AKADEMIYA2063.
2. FAOSTAT. Accessed on June 10th 2022. https://www.fao.org/faostat/en/#data
3. World Bank. Accessed on June 10th 2022. https://www.worldbank.org/en/research/commodity-
markets

22. THANK YOU