1. Responding to Rising Food Prices in ESA: A Regional Perspective By Joseph Karugia, Coordinator ReSAKSS-ECA

2. Outline Introduction Food Situation in ESA Regional Dimensions Recommended Policy Options

3. Introduction FAO food price index increased by 56% between Mar 07 and Mar 08 Food forms 40-70% of household expenditures => large contribution to inflation High Prices => incentive for farmers to increase supply

4. Introduction (2) Magnitude and implications of price changes in national and regional markets => appropriate policy action Approach Data Consultations among policy advisers, analysts and researchers from national, regional and international organizations

5. Comparing FAO and country FPIs FAO global food 160 price index 150 Ethiopia 140 Food Price Indices Kenya 130 120 Tanzania 110 Uganda 100 90 Madagascar 80 Malawi 70 Mar- Jun- Sep- Dec- Mar- 07 07 07 07 08 Rwanda Source: FAO, 2008; country statistics offices

6. Conflicting trends. Changes in Commodity Prices Jan-Mar 2008 (% ) Country Maize Beans Rice Wheat Meat Kenya 19 32 21 Tanzania 8 2 18 Uganda -2 7 0 7 Rwanda -14 -1 2 -6 4 Ethiopia 39 28 43 22 Zambia 14 5 4

7. Pattern of price changes is mixed Severity of the problem differs: across countries across commodities time of the year

8. Why are countries affected differently? Food baskets are different: Main staple internationally traded Net importer or exporter of staple Integration of domestic to regional and international markets

9. Changes in Prices of Main Staples % % Change in Change Commodity Price Country FPI Severity Traded? L/locked? Mar-07 to Staple Mar-07 to Mar-08 food Mar-08 Kenya 20.1 Maize 30.0 +++ Yes No Tanzania 11.2 Maize 93.7 ++ Yes No Zambia 9.1 Maize 33.8 + Yes Yes Rwanda 1.7 Beans 35.5 + Yes Yes Uganda 8.6 Banana 6.7 + No Yes Ethiopia 39.4 Teff 19.81 ++++ No Yes

10. Factors affecting demand for food in ESA 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 spike and volatility

11. Factors contributing to low supply of food in ESA 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

12. Yields are low and decreasing or stagnant 10 Burundi Comoros 9 DRC 8 Djibouti Egypt Maiza Yield (Tonne/Ha) 7 Eritrea 6 Ethiopia Kenya 5 Libya 4 Madagascar Malawi 3 Mauritius 2 Rwanda Seychelles 1 Sudan 0 Swaziland 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Uganda Zambia Year Zimbabwe

13. Differential impact on households Poor are hit hardest Net sellers less affected Rural net buyers more affected Urban poor depend on markets for food supplies

14. What levers to pull? Increase production? Productivity decline, climatic factors, Control demand? Population growth, income inequalities, ... Many slow to respond >3 years

15. Regional approach offers better prospects Exploit diversity in the region

16. Heterogeneity in production ESA harvesting timeline Source: Data: FEWSNET,2008

17. Most action is in domestic and regional markets But, there are serious barriers to trade: wasteful, high transaction costs Busia -Uganda Busia -Kenya

18. Some responses contributing to the problem Reduce taxes on food grains Cash transfers Food for work School feeding Agricultural input subsidies Increase food supply via imports Reduce food import tariffs Lower import tariffs for agricultural inputs Food stamps or vouchers Increase food supply using food grain stocks Price controls and/or consumer subsidies*** Food export restrictions*** Good for food security Some concerns for food security Likely to hinder food security Highly likely to hinder food security Source: World Bank, 2008

19. Conclusions The rise in global food prices is not completely transmitted to domestic markets Regional Response offers opportunities to address the price crisis Food crisis offers opportunities for agricultural development through increased domestic production, regional trade and integration [Paul Romer: A crisis is a terrible thing to waste]

20. Recommended Policy Options

21. Protect the vulnerable Priority Actions (for urban poor) Targeted food subsidies and cash transfers where markets are working Targeted food aid where markets are not working Reduce taxes on food grains For rural poor, in addition provide production support

22. 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

23. 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

24. 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

25. THANK YOU