The skyrocketing of food prices this month is affecting me as a citizen and has forced me to markedly cut my expenses on food at this age when I need to dine on balance nutrition. I just wondered what the situation is among poor urban dwellers in Addis Ababa with large families. Now you buy a kilo of carrots for 80 Birr and the same price is set for a kilo of shiro which is the major staple food among low-income urban dwellers. A kilo of oxen meat is about 400 Birr and I can no longer afford that.
By the way the increase in food prices is a global phenomenon. According to a report from FAO issued on June 3,2021, global food prices rose in May at their fastest monthly rate in more than a decade, even as world cereal production is on course to reach a new record high. The FAO Food Price Index averaged 127.1 points in May, 4.8 percent higher than in April and 39.7 percent higher than in May 2020.
A surge in the international prices of vegetable oils, sugar and cereals led the increase in the index, which tracks monthly changes in the international prices of commonly-traded food commodities, to its highest value since September 2011 and only 7.6 percent below its all-time peak in nominal terms.
According to FAO, the major causes are identified as: rapidly rising demand in emerging economies, poor harvests in some major commodity producing countries, increases in the costs of production due to higher fuel and fertilizer prices, higher transportation costs; and diversion of food crops to production of biofuels, and the introduction of policies to restrict food exports by some countries.
Mitchell (2008) argues that one of the most important factors is the large increase in biofuels production in the United States and the European Union. Others claim that the most important factor is expansionary monetary policy in key industrial countries, which led to low interest rates and a sharp fall in the value of the US dollar.
Food insecurity and the growing prices of food items in less developed countries like Ethiopia. Have continued to subject millions to all types of diseases that are caused by lack of food security Declaration on World Food Security, states that food security exists ‘when all people at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life’. Although high food prices have contributed to the rise of inflation in Ethiopia, about 20.6% in April this year, the disparity between public demand and supply, continuous lowering of the exchange rate on Birr, and the rapid increase in the prices of construction materials has led to increase in the level of inflation in the country.
Many economists in the country suggest that increase in the volume and quality of export commodities, introducing diverse types of import substitution on imported commodities as well as increase in the volume and type of manufactured goods could help to offset the increase in foreign debt and debt servicing.
Efforts underway by the government in encouraging the mix of export commodities and production of wheat, sugar, oil and other consumer items at the national level could help to contribute to price stabilization on food commodities and thereby prevent the surge in inflation. To date Ethiopia is importing 5 folds than it exports which constitute just about 3 billion USD.
Ethiopia will have to work much harder to reduce the national inflation level to a single digit and certainly, it is not going to be an easy task. Major readjustments in the economic system are still required including narrowing the gap in the national budget deficit.
It is to be noted that the incident of COVID-19 has affected the economy of the country in which the government has forecasted that some 30 million citizens will be affected. With the fiscal and monetary measures taken by the government, inflation was controlled to a fair level enabling the country to register 6% economic growth despite the prevalence of COVID-19 in the country. When hundreds of aviation companies were forced to lay off thousands of employees the Ethiopian Airlines Group managed to keep its staff and even gain a considerable level of profit by remaining in business at the peak time.
Although the liberalization of the trade sector is a favorable measure, government control on the prices of the commanding heights of the economy is imperative. The production of counterfeit international and local bank notes and contraband trade both in arms and other commodities, smuggling of gold and precious stones to the neighboring countries need to be strictly controlled with wider public participation.
Commendable measures taken in encouraging FDI are already showing good results which need to be further expanded. The production of lowland wheat is already showing good results that can help the country to at least feed its population.
Over the last couple of weeks, hoarding of various key export commodities and unjustified increase on goods and services is already pausing a threat of a hyperinflation in the country and will soon become a national security issue that could affect the stability of the country and the livelihood of millions of Ethiopians.
I have personally noticed that traders are increasing the prices of food items and services at will at the pretext of the sanctions that the US has imposed on Ethiopia. This is not only a dangerous trend in terms of its economic implications but will also have far reaching political implications.
Some merchants in the city have already started to speculate on further rising of prices and are hoarding saleable commodities to put them on markets at much higher prices over time. Given the potentials in agriculture and other sectors of the national economy, Ethiopia has all the chances to effectively and swiftly reduce the level of inflation in the country. It is very important to engage the private sector inn all spheres of the economy so that a wide based economic development can prevail in a more sustainable manner.
Inflation triggered by higher prices on food severely affects children in poor families by subjecting them to micronutrient malnutrition which could have been avoided by feeding children vegetables and fruits with lower prices. Currently, Ethiopia has the highest level of inflation rate in Sub-Sahara Africa. Although even the most developed countries had to grapple with inflation and finance related issues, they deploy all kinds of mechanisms to adjust their monetary and financial status to keep inflation under control.
Although the current situation appears to be bleak in terms of keeping inflation at bay, the country is on the right direction in making financial, trade and structural adjustments towards reducing the level of inflation in the economy. In the context of the National Home Grown Ten Years Economic Plan, considerable measure are expected to be taken to effectively reduce inflation to a single digit by harmonizing agriculture modernization with industrial development, the promotion of tourism, transport, construction and the trade sectors. These are critical sectors that would determine not only the reduction of inflation but also growth and development in the national economy.
BY SOLOMON DIBABA
The Ethiopian Herald June 12/2021
