1) Food prices in Ethiopia have been rising, driven by increases in global food prices as well as domestic factors. Cereals make up a large portion of household expenditures and the Ethiopian economy. 2) The prices of major cereals like teff, wheat, maize, and sorghum in Addis Ababa have generally been increasing in nominal terms since the late 2000s. Food inflation has outpaced general inflation. 3) The causes of rising food prices in Ethiopia include high domestic demand, expansionary monetary policy, shifts from food aid to cash transfers, infrastructure investments, overall inflation, and increasing global commodity and oil prices. Tight links exist between Ethiopian and international cereal markets

1. Dynamics of Food
Prices
in Ethiopia
Tadesse Kuma
24 May 2012
Ghion Hotel, Addis Ababa
EDRI/ESSP/ASARECA

2. Outline
 Introduction
 Food Price Trends in Ethiopia
 Causes of Food Price Inflation in
Ethiopia
 Government Response
 Planned Research
 Concluding Remarks

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. 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. Global food1: prices (3)
Fig. FAO Global Food Price
Index
Source: FAO , 2012

6. Fig.2: Share household expenditures on food (4)
60%
Pessimistic and optimistic views on food security and
prices
 Pessimistic view : population, climate change, soil degradation, power
difference Jongsoo Shin, 2012
Source:

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
solutions
Method of analysis:
 Descriptive analysis, trends, and Granger
causality

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. 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 index
Index
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. Price (Birr/100kgs)
(3)
200
400
600
800
0
1000
1200
Jan-02
Jun-02
Nov-02
Apr-03
Sep-03
Teff
Feb-04
Jul-04
Dec-04
Maize white
Wheat white
May-05
Oct-05
Sorghum white
Mar-06
Aug-06
Jan-07
Jun-07
Ababa market
Nov-07
Apr-08
Sep-08
Feb-09
Jul-09
Dec-09
May-10
Fig. 5: Nominal cereal price trends for Addis
Oct-10
Mar-11
Price trends of major cereals
Aug-11
Jan-12

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. Price trends of maize and
sorghum (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. Ethiopia, global & regional
prices (6)
Fig. 10: Global and regional maize price index (Jan. 2007= 100)
600
Kenya - dry maize bag 90kg bag
Uganda - Maize grain Kg
500 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 kilogram
300
200
100
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. Ethiopia, global & regional
prices (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. Wheat: Import & export parity
prices (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. Price ($/MT)
0
100
200
300
400
500
600
700
Jan-97
Jun-97
Nov-97
Apr-98
Sep-98
price (9)
Feb-99
Jul-99
Dec-99
($/MT)
May-00
Oct-00
Mar-01
Aug-01
Jan-02
Jun-02
Nov-02
Apr-03
Sep-03
Feb-04
Import parity (Addis Ababa)
Export parity (FOB Djibouti)
Jul-04
Dec-04
Wholesale price at Addis Ababa
May-05
Oct-05
Mar-06
Aug-06
Jan-07
Jun-07
Nov-07
Apr-08
Sep-08
Feb-09
Jul-09
Dec-09
May-10
Fig. 13: Maize: Import and export parity price
Maize: Import & export parity
Oct-10
Mar-11
Aug-11
Jan-12

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% sig
Teff 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 weak
Addis Ababa
Dire Dawa 18.4743 3.5E-07 No
Shashemene 7.23532 0.00143 Yes, 1% sig
Wheat market Wheat price of AA Jimma 15.1370 3.8E-06 Yes, 10% sig
market does not Mekele 10.9383 7.7E-05 No
Addis Ababa Granger cause Dire Dawa 9.35685 0.00026 No
Shashemene Yes, 1% sig
Maize 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. 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. Oil and cereal price index (2)
Fig. 18: Addis Ababa cereal & fuel price Index
(Dec. 2006 = 100)
350
300
250
Index
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. Fuel price changes (3)
Source: FAO, 2011

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. 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. 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. 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. 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