1. 1
IMPACT OF RICE PRICES ON
FOOD INFLATION IN
ZANZIBAR:
Do rice prices drive food inflation?

2. 2
December 2012
Table of Contents
CHAPTER ONE: INTRODUCTION.........................................................................................3
1.1 Background.....................................................................................................................3
1.2 Objectives of the Study....................................................................................................5
1.3 Methodology...................................................................................................................5
1.4 Organization of the paper.................................................................................................5
CHAPTER TWO: RICE SUPPLY IN ZANZIBAR.....................................................................6
2.1 Role of rice in Zanzibar food basket..................................................................................6
2.2 Domestic rice supply .......................................................................................................6
CHAPTER THREE: STUDY FINDINGS..................................................................................8
3.1 The effect of rice prices on the prices of other commodities................................................8
A: Headline and retail rice prices, 2007-2012 ......................................................................8
B: Non-Food Inflation and retail rice prices, 2007-2012 .......................................................9
C: Food inflation and retail rice prices, 2007-2012............................................................. 10
D: Periods retail rice prices and food inflation declined, increased and remained stable ........ 11
3.2 Relationship between international rice prices and domestic rice prices............................. 13
3.2.1 Import and retail prices of Rice Thailand Rice ,2006-2012 ......................................... 13
3.2.2 Twelve months percentage changes in Import and retail prices of Rice Thailand Rice ..14
3.3.3 Percentage changes in Zanzibar and Thailand Rice Prices relative to 2006 .................. 15
CHAPTER FOUR: CONCLUSIONS ANDPOLICY RECOMMENDATIONS.......................... 16
4.1 Conclusions .................................................................................................................. 16
4.2 Recommendations ......................................................................................................... 17

3. 3
CHAPTER ONE:INTRODUCTION
1.1 Background
Zanzibar is not self-sufficient in domestic rice supply. Food importation has remained an
important determinant of food availability in the isles. Zanzibar imports about 41 percent
of its annual food requirements with major imports being rice, sugar, maize and wheat
flour (MALE, 2006). Rice imports accounted for 83.3 percent of total domestic rice
supply in 2011 (FBS, 2011).
Food accounts for the highest weight of 57.4 percent (2008) in CPI basket out of which
20.8 percent is imported rice (BOT, 2009).Therefore, the effect of rice prices on food
inflation should be significant and could affect households food security of vulnerable
groups of which female headed households are the majority accounting for 21% of the
population (2009/10, HBS).
Over 60 percent of households’ budgets are spent on food and dependence on food
purchase across all livelihoods is remarkably high. High food prices erode the living
standards of non-farm households for whom food expenditure is the major budget item. It is
unimaginable for a household with daily income at the poverty level of $1.25 per capita,
spending over half of its income on food and facing a 50% increase in food prices. It will
require a post- increase income of $1.56 per capita to purchase its original basket of goods.
Volatile food prices result in these poor households becoming more vulnerable to such
erosion. Volatile and relatively high food inflation is likely a larger causal factor for
significant cuts in household expenditures on other essential basic needs such as education
(1.1%) and health (2.1%) especially among households with low purchasing power (HBS
2009/10). If prices of staple foods like Rice continue to rise and drive up food inflation,
the average share of food in total household expenditure in the isles will likely shoot up
further and this may substantially deepen the poverty levels.
Moreover, high food inflation may also be contributing to inadequate food intake and
subsequently high Protein-Energy Malnutrition levels in the isles. According to the
2009/10 Demographic Health Survey (DHS), the level of stunting (low height for age) is
30.2%; wasting (low weight for height) is 12% and underweight is 19.9% (low weight for
age). The prevalence of stunting which is an indication of chronic malnutrition in children
has increased significantly over years with its intensity varying significantly across islands
and regions. An estimated 26% of the population in Zanzibar is undernourished while
about 13% and 45% of the population is below the food and basic needs poverty lines
respectively (2009/10,HBS). Protein intake for the rural (8.4%), urban (7.2%) and national
(7.9%) populations is below the recommended WHO/FAO standards of (10-15) %

4. 4
(2009/10 HBS). Based on 2009/10 HBS, the average poor person consumes about
1,338kilo calories (kcal) per day, which is significantly below the FAO recommended
minimal daily per capita caloric intake of 2,100 kcal .
From 2006 to date rice prices has been escalating tremendously. From 2006-08, rice prices
doubled reaching a peak of Tsh.1,021 and then remained relatively stable for about three
years. Thereafter, rice prices kept on rising till recently. Between 2006 and 2008, rice
prices increased by 95 percent while food inflation in Zanzibar slightly fell to 22 between
July to August 2007 and later increased to a peak of 28 in October 2007.
Food inflation gradually collapsed and remained relatively low and stable from the last
quarter of 2007 till the end of 2009. During the same period where food inflation registered
a declining trend, the price of rice which was highest in July 2008 at Tsh.1,200 also
gradually declined to Tsh.898 by December 2009.
Monthly Headline, Food and Non-food Inflation of Zanzibar
Food inflation rose again from 4 percent in January reaching another peak at 26 percent in
December 2010 and sharply fell to 1 percent in November 2011 while rice prices have
remained relatively high but stable. Within the period under review (2006-2012), rice
prices have increased by 138 percent while food inflation which was relatively low in
2006, started to exhibit volatility. Could the changes in rice prices between 2006-12 have
likely driven volatility in food inflation and by what margin? Should we be concerned by
the level or the volatility of prices? Aren’t poor households at a higher risk of being brought below the
poverty level?
.
0
5
10
15
20
25
30
35
Headline Food Non-Food

5. 5
1.2 Objectives of the Study
Specific objectives of the study are:
 To analyze the effect of rice prices on inflation in Zanzibar, 2007-2012
 To examine the relationship between international rice prices and domestic rice
prices in zanzibar,2007-2012
1.3 Methodology
A review of the existing secondary sources of information was conducted. Monthly data on
the prices of Thailand Rice locally known as Mapembe and food inflation for the period,
2006-2012 in Zanzibar was collected and analyzed. A Univariate analysis and econometric
estimation of the variation of food inflation were conducted for the period, 2007-2012.The
regression results are presented in the next section.
1.4 Organization of the paper
This paper is divided into five chapters. The first chapter comprises of the introduction,
objectives of the study and the methodology. The second chapter explains the role of rice
in Zanzibar food basket. Chapter three presents the findings of the analysis of data and
interpretations of results. Chapter four presents conclusions and policy recommendations.

6. 6
CHAPTER TWO: RICE SUPPLY IN ZANZIBAR
2.1 Role of rice in Zanzibar food basket
Rice is a staple food in Zanzibar, and has a significant contribution in the share of food
consumption and total caloric intake for the population. The average per capita rice
consumption is 41kg per year, which provides about 469 kilocalories to the average total
2024 total kilocalories available between 2007 and 2011.
In Zanzibar, majority of households depend on the market to access rice supplies.
Households also tend to prefer rice to other food commodities such as cassava and
potatoes.
In 2009/10 food purchases constituted significant proportion of total food consumed by
households in Zanzibar. At the national level, food purchases accounted for 80 percent of
household food supplies while in the rural and urban areas, they accounted for 71 and 90
percent of the total food consumed respectively (OCGS, 2011). In the same period, food
took 55 percent of the average household’s total expenditure with a larger share of total
expenditure registered among the poor. For the two poorest deciles, the food expenditure
ratio was 60 percent.
2.2 Domestic rice supply
Rice is cultivated on 26,000 ha by 65,000 small holder farmers with a per capita land
holing of 0.5ha. About 90 percent of the area cultivated is under a rainfed farming system.
Average annual total domestic supply of rice in Zanzibar was 53,000 MT tons between
2002 and 2011. In 2011, imported rice accounted for 83.3 percent of total supply (FSND,
MANR, 2012).
Domestic rice production is far below the national food requirements. The capacity of
domestic rice production is 1 ton/ha for rain-fed rice and 4 tons/ha for irrigated rice,

7. 7
compared to a potential of 3 tons/ha for rain-fed rice and 6 tons/ha for irrigated rice
respectively.
Rice production in Zanzibar from 2002-2011 exhibited a volatile trend. As depicted in
Table 1,between 2007 and 2011 rice production fluctuated between 8,000 and 14,000 MT.
The drop in rice production registered in 2008 and 2011 was primarily due to adverse
weather. Nevertheless, the increase in rice production observed in 2010 was driven by
yield increase per unit area. The increase is explained by the gradual introduction of
higher yielding varieties that are better adapted to the country’s adverse agro-climatic
conditions.
The frequency of rainfall irregularities has been observed in Zanzibar since 2006. Weather
shocks which are apparently increasing in frequency and severity do not only pose a great
challenge to agricultural development and rice production, but also increase concern over
the success of the recently launched Rice Inputs Subsidy Programme. Through this
initiative, smallholder farmers are availed with access to technologies to expand utilised
land area, intensify production and shield them from the hike in international fertilizer
prices- albeit at a significant fiscal cost.
Figure 1: Rice production and import in Zanzibar, 2002-2011
Data source: MANR
Rice imports fluctuated between 20,000 and 60,000MT and do serve as a buffer against
poor harvest for some years. Food price volatility also imposes costs throughout the food
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2,002 2,003 2,004 2,005 2,006 2,007 2,008 2,009 2,010 2,011
Imports(MT)
Production(MT)

8. 8
supply chain. Annual expenditures on rice imports ranged from 3 to 10 million USD
between 2002 and 2008.
CHAPTER THREE:STUDY FINDINGS
3.1 The effect of rice prices on the prices of other commodities
Monthly domestic prices of imported Thailand rice were regressed against monthly
headline, non-food inflation and food inflation in Zanzibar from January 2007-June 2012
to determine the effect of rice prices on other commodities. The results are presented
below.
A: Headline and retail rice prices, 2007-2012
Regression results of monthly headline inflation and rice prices during 2007-12, showed a
moderately high relationship between the two variables as reflected by the coefficient of
correlation of 0.62. Monthly retail prices of Thailand rice explained 61 percent of the
variation in monthly headline inflation from January 2007-June12.
Table 1: Summary Output
Regression Statistics
Multiple R 0.787651527
R Square 0.620394928
Adjusted R Square 0.61436945
Standard Error 3.70253037
Observations 65
Coefficients
Standard
Error t Stat
P-
value
Lower
95% Upper 95%
Intercept 8.972 0.597 15.032 0.000 7.779 10.165
Rice
Prices 0.201 0.020 10.147 0.000 0.162 0.241
Given that, the computed T.Statistic (102.9) was greater than the tabulated value of 7.06,
and the low probability value, regression results were used to fit the regression model and
make prediction of the variables.
Table 2: Analysis Of Variance (ANOVA)
df SS MS F Significance F
Regression 1 1411.478 1411.478 102.962 7.06596E-15
Residual 63 863.6501 13.70873

9. 9
Total 64 2275.128
The findings reveal that a one percent increase in the monthly retail prices of Thailand
Rice increases monthly headline inflation by 0.201 percent.
Figure 2: Headline inflation and retail rice prices (12months % change)
According to Figure 2, rice prices in Zanzibar were more volatile than headline inflation
especially between 2007and 2010. Rice prices also appear not to be driving headline
inflation.
B: Non-Food Inflation and retail rice prices, 2007-2012
From the regressions results of Table 3, show that there is a weak relationship between
retail rice prices and Non-Food Inflation. Retail Rice prices explained only 45 percent of
the variation in Non-food inflation.
Table 3: Summary Output
Regression Statistics
Multiple R 0.683106
R Square 0.466634
Adjusted R Square 0.458168
Standard Error 4.287694
Observations 65
Coefficients
Standard
Error
t Stat P-value Lower 95% Upper
95%
Intercept 6.925
0.691 10.019 0.000 5.544 8.306
Rice
Prices 0.171 0.023 7.424 0.000 0.125 0.216
(40)
(20)
-
20
40
60
80
100
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Zanzibar Rice Retail Prices(Tsh.) Headline

10. 10
Basing on the computed and significant F statistics, the model was fit to explain the
variation. According to the results, price changes seem to move in line with general non-
food inflation. Furthermore, a one percent increase in the retail prices of Thailand rice
increased Non-food inflation by a small margin of 0.171 percent during the period January
2007-June 2012.
Table 4: Analysis of Variance (ANOVA
df SS MS F Significance F
Regression 1.0000 1,013.3047 1,013.3047 55.1179 0.0000
Residual 63.0000 1,158.2122 18.3843
Total 64.0000 2,171.5169
From the regression results, an increase in monthly domestic prices of Thailand rice by one
percent, increases monthly non-food inflation by 0.171 percent. According Figure 3, Non-
food inflation does not closely follow the Retail prices of Thailand Rice.
C: Food inflation and retail rice prices, 2007-2012
Retail Rice Prices explained about 59 percent of the variation in Food Inflation as reflected
by Adjusted R- squared shown in Table 5. Considering that the computed F statistic
(95.451 ) was greater than the tabulated statistic (3.08) and the low probability value of
0.000, the model was fit the variation of food inflation .
Table 5: Summary Output
Regression Statistics
Multiple R 0.776144377
(40)
(20)
-
20
40
60
80
100
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
%changeover12months
Figure 3: Non-food Inflation and Zanzibar Rice Prices (12 months %
change)
Non-Food Zanzibar Rice Retail Prices(Tsh.)

11. 11
R Square 0.602400093
Adjusted R
Square
0.596088984
Standard Error 4.644363492
Observations 65
Coefficients Standard
Error
t Stat P-value Lower
95%
Upper
95%
Intercept
10.310
0.749
13.771 0.000 8.814 11.806
Rice
Prices 0.243
0.025
9.770 0.000 0.193 0.293
The elasticity of Food inflation to retail rice prices is positive implying that an increase
retail rice prices increases food inflation.
Table 6: Analysis of Variance (ANOVA)
ANOVA
df SS MS F Significance F
Regression 1 2058.883 2058.883 95.451 3.08
Residual 63 1358.917 21.57011
Total 64 3417.8
Regression results indicate further that a one percent increase in the monthly prices of
Thailand Rice increases monthly food inflation by 0.243 percentage points.
Meanwhile, the percentage changes in monthly Retail prices of Thailand Rice and food
inflation appears to be volatile and the former does not appear to be driving the latter.
It is important to note that in the last six months, both Thailand rice prices and food
inflation exhibited a declining trend. Domestic Rice price which was highest in February
2012 at Tsh 1,349 fell to Tsh1,166 in June 2012 while food inflation gradually declined
from 19 percent in February to 5 percent in June 2012.
D: Periods retail rice prices and food inflation declined, increased and remained
stable
Considering quarterly data, the study further identified the quarters where retail prices and
food inflation tended to shoot up, fall and stabilize between 2006-2012.
Results reveal that food Inflation declined in 13 quarters and went up in 10 quarters
between 2006 and 2012. There was no observed record of stability of food inflation for
nearly all the quarters of 2006-12.

12. 12
It worth noting that the decline in food inflation was mainly observed in third quarter of
each year and also in the quarters where Rice Prices were stable. The stability of food
inflation in the third-quarter may likely be attributed to the lifting of import duty on food
items for the period of Islamic holidays; which usually occur in the third quarter.
Also, food inflation was observed to have risen and fallen more in the first, second and
third quarters of the year compared to other periods of the year. Food inflation exhibited a
volatile behavior in nearly the entire from 2006-12 and also tended to respond positively
with the changes in the Retail Prices of Rice during the first and last quarters of the year
most especially during 2007-08.
On the other hand, rice prices tended to rise both at the start and end of each year i.e. first
and third quarters of the year. Rice prices went up in 2 out of every 3 third quarter of the
year and four in seven first quarter of the year.
Frequency of Rise, fall, and stability of Retail Rice Prices and Food Inflation per quarter
from 2006-2012
Rice prices Food Inflation
Q 1 Q 2 Q 3 Q 4 Sub-Total Q 1 Q 2 Q 3 Q 4 Sub-Total
Rise 4 2 2 4 12 3 3 1 3 10
Decline 3 3 1 2 9 3 3 5 2 13
Stable 0 2 3 0 5 0 0 0 0
Total 7 7 6 6 26 6 6 6 5 23
Rice price went up in 12 out 26 quarters. They declined and remained stable in 9 out 26
and 5 out of 26 quarters of the year respectively in the period 2006-2012.
(40)
(20)
-
20
40
60
80
100
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
%changeover12monts
Figure 4: Food Inflation and Retail Rice Prices (12month % change)
Food Inflation Zanzibar Rice Retail Prices(Tsh.)

13. 13
3.2 Relationship between international rice prices and domestic rice prices
3.2.1 Import and retail prices of Rice Thailand Rice ,2006-2012
From Figure 5, Rice importers in Zanzibar usually take one- two months to respond to the
changes in Thailand import prices as they continue to sell the old stocks.
Figure 6 shows the Zanzibar retail rice price and the Thai FOB rice price both in Tsh/Kg .
Average monthly prices of mapembe rice (Thai 100 percent broken) in the world market
increased significantly from January 2008 at USD 272.3 per ton, reaching the highest
record of USD 762.7 per ton in April 2008. The rise in world import prices is attributed to
the global financial crisis, world recession and petroleum oil crises and subsequent export
restrictions by rice producing countries. The effects were passed on fully to producer and
consumer prices of Thailand rice.
-
200
400
600
800
1,000
-
500
1,000
1,500
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
ThailandRiceImportPrices(US/Ton)
ZanzibarRiceRetailPrices(Tsh/Kg)
Figure 5: Zanzibar Rice Prices (lagged one month) and Thailand
Import Rice prices,2007-2012
Zanzibar Rice Retail Prices Thai FOB ($/ton) Thai FOB

14. 14
Thereafter, monthly rice prices, started to decline gradually reaching USD 287.3 per ton in
December 2008. Accordingly, domestic prices of Thailand imported Rice started to
decline in August 2008 from highest level of TZS 1,200 per kilogram in July 2008 to TZS
1,016 per kilogram in December 2008, responding to decline in the world market prices
(BOT, 2009). This explains the decline in the percentage changes in retail the period that
followed.
3.2.2 Twelve months percentage changes in Import and retail prices of Rice Thailand
Rice
Figure 7 compares the annual 12 months percentage changes in both the import and retail
prices of Rice Thailand Rice for the period January 2007-May 2012.
Zanzibar rice prices have been less volatile than Thai export prices and have generally
followed Thai export prices. From January–November 2007, the percentage change in the
retail prices of Thailand rice was relatively higher than the percentage change in the import
prices of Thailand Rice.
-
500
1,000
1,500
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Figure 6: Zanzibar Retail Prices and Thail FOB
Prices(Tshs/Kg),2006-2011
Zanzibar Rice Retail Prices(Tshs/Kg) Thai FOB (Tshs/Kg)

15. 15
At the start of 2008, the percentage change in Thailand Rice import prices (US/ton) went
up and peaked at 186.6 in April 2008. However, the increase in the percentage change in
Thailand import (FOB) prices was higher than retail prices.
From May 2010-May 2011, the percentage change in the retail prices of Thailand rice in
Zanzibar was far higher than that of the import rice prices of Thailand rice. Thereafter, the
percentage change of the import rice price of Thailand increased and has remained high
until recently.
3.3.3 Percentage changes in Zanzibar and Thailand Rice Prices relative to 2006
The percentage change in import prices of Thailand Rice tended to be more volatile than
the domestic rice prices.
(100)
(50)
-
50
100
150
200
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Figure 7: Import Prices of Thailand Rice and ZanzibarRetail
Prices,2007-2012
Zanzibar Rice Retail Prices(Tsh.) Thai FOB ($/ton)

16. 16
CHAPTER FOUR: CONCLUSIONS AND POLICY
RECOMMENDATIONS
4.1 Conclusions
• The retail prices of Thailand Rice in Zanzibar did not significantly account for changes
in food inflation far beyond their weight in the CPI basket of 20.8 percent. A one
percent rise in Rice prices drove upwards food inflation by only 0.243.
• Overall, the retail prices of Thailand rice do not cause significant additional price
inflation for either food or non-food as had been earlier anticipated.
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Figure 8: % changes in Thai FOB and Zanzibar retail rice prices based on 2006
(Price Index=100)
Retail
Thai FOB

17. 17
4.2 Recommendations
Since the effects of food inflation on low income households are adverse, the following
policy measures are recommended targeting various policy makers including the National
Food Security and Nutrition Council, Inter-Sectoral, Steering Committee, Revolutionary
Council and House of Representatives) in Zanzibar:
 Continue with investments in domestic rice production to drive down the relatively
high and increasing prices of rice.
 Reduce/Lift rice import duties mainly during periods of food crises.
 Eliminate barriers of entry into the current rice import trade-It is oligopolistic with few
importers (BOT,2009).
 Support competition in food import to stabilize/reduce prices at local markets
 Traders be encouraged to expand the range of rice import countries, Myanmar
(Burma), India, Pakistan, USA and Vietnam.
 Initiate targeted social protection policies for low income and food insecure households
 Identify and address other factors driving high (double digit) food inflation
REFERENCES:
Ataman Aksoy(ed.).(2012). African Agricultural Reforms: The role of consensus and
Institutions: World Bank, Washington, D.c.
Bank Of Tanzania (BOT), Zanzibar Branch (2009).Impact of World Market Rice Prices to
Inflation In Zanzibar: A Synopsis.
Christopher L. Gilbert (September 2011). Food Reserves in Developing Countries: Trade
Policy Options for Improved Food Security, University of Trento, Italy.
FSND(2012). Zanzibar Food Balance Sheet report

18. 18
International Food Policy Research Institute(December 1996). Rice Market Monitoring
and Policy Options study, Final Report; World Bank, Washinton.D.C.
OCGS. Household Budget Survey 2009/10
Tanzania Demographic Health Survey (DHS 2010)