Yechalal! ...... Awoooooooo .....Yechalal! - Amxambe

ኢትዮጵያ

Dr Eleni of ECEX

It is difficult to explain the continued increase in price levels from 2003 to the present, when Ethiopia has had three consecutive years of good to above average harvests, according to official statistics.

Three researchers from IFPRI-EDRI Ethiopia Strategy Support Program (ESSP) said recently that at present, in early 2006, it is especially puzzling why prices have reached peak levels, despite the predicted bumper crop, with an estimated increase over last year's production by 16 to 24 percent.


The researchers, Dr. Eleni Zewde Gebre-Medhin, Kindie Getnet and Senishaw Tamiru, who produced an overview of patterns and trends in the Ethiopian grain market, said that a quick overview of different grain prices across terminal and regional markets revealed another puzzle. Addis Ababa is normally considered the central market for the country, and is supplied by regional markets in surplus areas, and in turn supplies terminal markets in deficit areas, such as Mekelle and Dire Dawa.


However, they said, in December 2005 prices were higher in some of the supply markets such as Debre Zeit than they were in Addis Ababa. This, they indicated, suggested that trade flows may have changed from traditional channels recently, from Debre Zeit to other markets, including potentially export markets, instead of Addis Ababa.


The current high grain prices are not only a result of the price increases over last year's levels but the preceding year's increase as well, according to them. Thus, while wheat prices have gone up by 30 percent over December 2005 levels, this is combined with last year's increase of 18 percent. Similarly, maize increased by 40 percent last year, which is combined with a more modest increase this year. These cumulative increases are therefore resulting in current prices that are significantly above the trend prices.


Regarding the rapid appraisal of the current market situation, the researchers said that given the current price puzzle, a number of possibilities emerge as possible explanations. On the supply side, there is the possibility of a decline in supply, while on the demand side, a demand surge could have occurred. A third possibility is that of market manipulation by different actors: cooperatives, traders, or others. Given the importance of grain in the consumer food basket, possible intervention may be necessary.


To this end, a team from the ESSP undertook a modest rapid market appraisal in six markets, selected to represent the wheat, teff, and maize growing areas as well as two major terminal markets in January 2006. The objective of the appraisal was to collect firsthand information from different informants (farmers, consumers and grain traders), with the objective of identifying the most likely explanations for the price hike.


In most of the cases, farmers around Nazareth (Adama) as well as Nekempte attributed the observed grain price hike to a supply shortfall, which, in turn, is believed to be a result of lack of rainfall during the flowering stage and bad weather (frost) during the maturity stage of this year's crop production. All the farmers contacted during the appraisal mentioned that their crop yield had shown significant reduction this year. The farmers mentioned that they were getting good prices currently for their crops although they feared that their total income from crop sales would be limited due to the limited marketable surplus that they had as a whole.


The views of private grain traders show that under normal circumstances, traders perform temporal arbitrage by storing grains during the harvest period when prices are low and selling grains during the lean season when prices are high, provided that the cost of storage is low enough to enable them to gain some profit. However, grain traders interviewed in the rapid appraisal stated that they were neither buying grain in significant amounts nor storing grains this time as prices were very high and prohibitive. This is in direct contradiction to the views expressed by consumers, who believe that traders are hoarding grain. Traders also hold the view that prices will remain high for the rest of the year and emphasize the importance of three factors as possible explanations for the current price hike.


The researchers, in their policy options to the current situation, demanded that short-term options involve a combination of measures that might address both the underliying market fundamentals as well as market expectations. These options involve, with varying emphasis, such as public announcement and release of grain stocks held by cooperative unions; release of stocks held in the emergency food grain reserve and by the Ethiopian Grain Trade Enterprise; measures to discourage grain exports; and consideration of increasing share of in-kind transfers in the safety nets program.


However, they said, the short-to-medium term critical challenge was to address the market intelligence gap, and more profoundly, to build the appropriate market institutions to manage market risk through a better coordinated marketing system, a more transparent price discovery mechanism, and open bidding of both domestic and export demand and supply.


By Melaku Demissie