Ethiopia's Drought and Cereal Prices

Since 2015, Ethiopia has been hard hit by droughts triggered by El Niño.  These droughts have reduced agricultural output and livestock production throughout the country and have driven large numbers into food insecurity. The Government of Ethiopia estimates that 10.2 million people will need emergency food aid in 2016, in addition to the 7.9 million people already covered by the country’s Productive Safety Net Programme.

In a new working paper from the Ethiopian Strategy Support Program, researchers examine how staple food prices, specifically for teff, maize, wheat, and sorghum, have been impacted by the drought. To do this, the paper looks at the evolution of monthly producer prices taken from Ethiopia’s Central Statistical Agency for over 400 woredas, as well as monthly retail prices from 120 woredas, for a period covering January 2014 through January 2016.

The paper finds some surprising results. In general, cereal prices have declined since January 2014. The average price for cereals in January 2016 in woredas most seriously impacted by the drought was 8.4 percent lower than two years previously; in all other woredas (i.e., those less heavily impacted by the drought) combined, prices dropped by about 11 percent. Cereal prices followed a similar trend of decline in both drought-stricken woredas and woredas not impacted by the drought, suggesting that cereal markets remained reasonably well-integrated throughout the period.

Maize in particular shows a consistent decline throughout the study period. Since maize is the largest source of calories in the national food consumption basket, particularly for poor populations, this decline has important implications for national food security. In January 2016, maize prices had declined by almost 1 birr per kg from their January 2014 levels; this was a decline of 18 percent in woredas that were worst hit by the drought, and 23 percent in woredas less hard hit.

Teff, sorghum, and wheat prices saw slightly more mixed trends. Teff prices declined at the beginning of 2015 but rose again at the end of 2015 to reach their January 2014 levels. Sorghum prices followed a similar trend, but their January 2016 prices remained 1 birr per kg lower than January 2014 prices. Wheat prices rose by 1 birr per kg throughout 2014 but ended slightly lower at the end of 2015.

The price of pulses and root crops, on the other hand, have increased over the study period. Pulse prices increased by 31 percent, while the price of root crops increased by 29 percent on average in all woredas between January 2014 and January 2016.

The paper finds that Ethiopia’s real food consumption basket price has declined over the study period. As mentioned previously, at the national level, cereal prices declined by 11.2 percent. However, the authors point out that these declines were not as prominent  in drought-affected areas as in areas less impacted by the drought, highlighting the impact of failed harvests in some woredas.

The paper also finds that compared to prices 1997-1998, when another serious drought hit Ethiopia, cereal prices in 2015-2016 have generally remained stable. During the previous drought, prices for all four main cereals (maize, teff, sorghum, and wheat) rose by 15, 31, 38, and 47 percent, respectively, between the first quarter of 1997 and the first quarter of 1998; these prices all showed a large drop during the fourth quarter of 1998, likely due to the receipt of international food aid.  This difference suggests that the current drought may be less severe in terms of overall food prices, largely thanks to large wheat imports in 2015 and expected wheat imports in 2016.

Livestock prices paint a more troubling picture. When livestock prices are declining, the authors argue, this can be an indicator of upcoming food insecurity, and livestock prices have indeed been on the decline over the study period, falling by 3 to 16 percent in more drought-affected woredas. The decline is likely due to a lack of adequate pasture growth, deteriorating physical conditions of livestock, and losses in agricultural output driving increased livestock sales to support households’ livelihoods. Livestock-cereal terms of trade have also declined in areas most hard hit by the drought because livestock prices have fallen faster than cereal prices. These trends suggest that pastoralist households and small farmers who own livestock may face significant hardship in the coming months.

Overall, while the cost of Ethiopia’s consumption basket has not increased over the study period at either the national level or in drought-affected areas, the authors conclude that households in these areas still face livelihood losses due to drops in agricultural outputs and a depletion of assets like livestock. Thus, there is a clear need for assistance in drought-stricken areas, as well as for open trade policies (such as the removal of import tariffs and export restrictions) to allow surplus grains to move freely from food-surplus to food-deficit areas. This will ensure stable food supply and will help to keep consumer prices low. The situation in Ethiopia also highlights the importance of proper and timely data collection and sharing in order to fully understand food security conditions and price increases or volatility at the local level. 

By: Sara Gustafson, IFPRI

Photo credit:Flickr: Andrew Heavens