Shocks and agricultural prices:Impact of the recent drought

1. ETHIOPIAN DEVELOPMENT
RESEARCH INSTITUTE
Shocks and agricultural prices:
Impact of the recent drought
Fantu Bachewe, Feiruz Yimer, and Bart Minten
IFPRI ESSP
International Conference on The Impact of El Niño on Biodiversity, Agriculture, and
Food Security
22-24 February 2017
Haramaya University
Ethiopia
1

2. 2
Introduction
• Agriculture negatively impacted by El Niño triggered
droughts during 2015/16
• Decline in cereal output estimated between 14% (FAO, 2015) and
1.3% (CSA, 2016) in 2015/16 relative to 2014/15
• Regional variation in negative impact on crop output
• This lead to severe hardship and food insecurity
1. Estimated 10.2 million people required food assistance in 2016, on
top of 8 million under PSNP
2. 47% more malnourished children needed therapeutic feeding in
Feb. 2016 compared to a year earlier;
3. Estimated 2.5 million people needed treatment for moderate and
acute malnutrition in 2016

3. 3
Introduction
Objectives of study include:
• Monitor the evolution of real crop and livestock
prices during the June 2014 to June 2016 period
• Track changes in real costs of per capita consumption
basket during same period
• Compare prices in 2015/16 with 1997/98 – a period
impacted by a similar major drought

4. 4
Data
1. CSA crop and livestock producer price data:
• Producer prices collected monthly in 400 woredas
• Retail prices collected in 120 woredas
Producer
Retail
Producer and retail
Neither

5. 5
Data
2. Distinction of woredas by hotspot category
• Ethiopian Government & partners categorize woredas (6 criterion)
• 28%, 19%, and 10% woredas were hotspot 1, 2, and 3 in March 2016
Hotspot 1
Hotspot 2
Hotspot 3
Uncategorized

6. Crop prices
• A number of drought-related impacts on prices expected
1. Crop prices expected to increase following decline in
crop production (assuming no additional food imports)
• If markets not well integrated, prices in drought-affected areas
expected to increase faster
2. Cattle prices expected to decline following rapid increase
in farmers’ sale of livestock
• Decline in pasture areas and crop residue; and
• Livestock a form of insurance against crop failure

7. 7
Crop prices
- Cereal prices declined overall and in all crops except teff
Real cereal price changes between June 2014 and June 2016 (%)
Crop Overall
Woredas categorized as
Hotspot 1 Hotspot 2 Hotspot 3 Uncategorized
Cereals -11.5 -11.8 -11.1 -9.4 -12.0
Teff 6.1 1.5 5.1 12.1 8.4
Maize -16.4 -19.5 -22.6 -9.8 -13.1
Wheat -23.2 -21.7 -22.3 -21.6 -24.5
Sorghum -17.2 -16.7 -8.9 -15.9 -21.3
Changes during January 2014-January 2016
Cereals -11.3 -7.7 -11.9 -11.9 -13.4

8. 8
Crop prices
Trends in real cereal prices during June 2014-June 2016 (birr/kg)
3
4
5
6
7 Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Hotspot 1 Hotspot 2 Hotspot 3 Uncategorized

9. 9
Crop prices
Four main findings on cereal prices:
1. Prices declined by 11.5% for all woredas combined
2. Decline in prices second faster in the hotspot 1 areas
• May reflect impact of increased food aid directed to these areas
• Decline was slowest in hotspot 1 during Jan. 2014-Jan. 2016
3. Prices in hotspot 1 and 2 are higher (as food deficit
areas, even before drought)
4. Similar trends in cereal prices, indicating relatively good
market connection
• Prices increased for pulses (36%), root crops (19%), and
oilseeds (16.6%) while enset/kocho prices declined at 1%

10. 10
Livestock prices
• Livestock prices declined during June 2014-June 2016,
• Decline was faster during Jan. 2014-Jan. 2016, particularly in
severely affected areas
Real livestock price changes between June 2014 and June 2016 (%)
Livestock Overall
Woredas categorized as
Hotspot 1 Hotspot 2 Hotspot 3 Uncategorized
Cows -3.8 -6.1 -9.4 -7.0 1.6
Oxen -3.9 -13.1 0.4 -2.6 0.2
Sheep -0.7 3.6 5.2 5.2 -7.2
Goats 0.7 1.8 -7.1 -0.6 4.5
Changes during January 2014-January 2016
Cows -4.0 -11.1 -7.7 -6.3 2.8
Oxen -7.3 -15.9 -12.8 -6.3 -0.1

11. 11
Terms of trade
- Terms of trade (ToT) of livestock and cereal measured as:
=Real price of livestock/real price of 100 KGs of cereals
Terms of trade of livestock and cereals, June 2014-June 2016
0.4
0.6
0.8
1
1.2
1.4
Jun-14
Aug-14
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Dec-15
Feb-16
Apr-16
Jun-16
Shoats vs cereals
Hotspot 1 Hotspot 2
Hotspot 3 Uncategorized
4
5
6
7
8
9
10
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15
Mar-16
Jun-16
Cattle vs cereals
Hotspot 1 Hotspot 2
Hotspot 3 Uncategorized

12. 12
Terms of trade
- ToT of livestock and cereal prices improved in all areas
- Lower increase in cattle vs cereal ToT in hotspot 1 areas
Changes in terms of trade (%) between livestock and cereals
(comparing June 2016 to June 2014)
Items compared Overall
Woredas categorized as
Hotspot 1 Hotspot 2 Hotspot 3 Uncategorized
Cattle vs cereals 11.0 3.0 8.8 10.9 16.8
Shoats vs cereals 14.3 16.4 11.0 16.0 14.1
Changes during January 2014-January 2016
Cattle vs cereals 8.4 -4.5 2.7 8.5 19.0
Shoats vs cereals 13.6 4.3 8.4 17.5 19.5

13. 13
Food consumption
- Maize, wheat, and sorghum important in the drought-
affected areas
Source: Authors’ calculations from CSA, HICES 2011.
0
100
200
300
400
500
Tigray Afar Amhara Oromiya Somali SNNP Total
Kg/capita/year
Teff Wheat
Barley Maize
Sorghum Pulses
Animal-products Enset/kocho

14. 14
Food consumption
- Cost of per capita consumption basket declined
- Decline fastest in hotspot 1 areas during June 2014-June
2016 but was slower during Jan. 2014-Jan. 2016
Changes in real costs of per capita consumption
(in %; June 2014 to June 2016)
Item Overall
Woredas categorized as
Hotspot 1 Hotspot 2 Hotspot 3 Uncategorized
Cereals -12.6 -14.0 -11.5 -10.6 -12.4
Cereals and root
crops
-11.6 -13.3 -10.5 -9.0 -11.4
Cereals, root
crops, and kocho
-10.2 -12.7 -9.5 -6.5 -9.7

15. - Major El Niño triggered drought in 1997/98
- Cereal output declined 25% during 1996/97-1997/98 (CSA)
El Niño strength (red line is the El Niño threshold)
Source: Vulnerability Analysis and Mapping – World Food Programme (2015)
15
Comparison with a previous major drought

16. 16
Comparison with a previous major drought
- Significant price increases in 1997/98; not seen in 2014/15
0.6
0.8
1
1.2
1.4
1.6
Year1Q1
Year1Q2
Year1Q3
Year1Q4
Year2Q1
Year2Q2
Year2Q3
Year2Q4
Maize
1997/98 2015/16
0.6
0.8
1
1.2
1.4
1.6
Year1Q1
Year1Q2
Year1Q3
Year1Q4
Year2Q1
Year2Q2
Year2Q3
Year2Q4
Wheat
1997/98 2015/16

17. 17
Comparison with a previous major drought
- Significant increases in cost of cereal consumption basked
in 1997/98
0.6
0.7
0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
Year1Q1
Year1Q2
Year1Q3
Year1Q4
Year2Q1
Year2Q2
Year2Q3
Year2Q4
1997/98 2015/16

18. 18
Conclusions
- Cereal prices declined over the period studied,
- Cost of cereal consumption basket (CCCB) declined by 13%
- Decline in prices and CCCB faster in hotspot 1 areas during June
2014-June 2016
- Decline was slowest during January 2014-January 2016
- Possibly because of large food-aid directed to those areas;
 No indication of large-scale effects of drought on cereal
prices and costs of cereal consumption basket

19. 19
Conclusions
- Livestock prices declined faster in drought-affected areas
compared to unaffected areas,
- However, decline in livestock prices slow relative to cereals leading
to improvement in livestock terms of trade
- Overall, price effects much different than in the previous
drought of 1997/98
- However, households affected by drought may have lost
productive assets and may still need further assistance

20. Thank you
Comments welcome