Infographic: Root Cause Remains Puzzle, Yet Cost of Living Keeps Rising

Mar 17 , 2020

The latest figures from the Central Statistical Agency show that food inflation has marked a 3.1-percentage-point increase to reach 25.1pc, year-over-year. This has pushed a quintal of white teff to more than 4,000 Br. As consumers struggle, experts blame agricultural productivity, long supply chains and a growing monetary base for the increase in food prices, writes TEMESGEN MULUGETA, FORTUNE STAFF WRITER.

Under normal circumstances, February is an amiable month to consumers of food items. Supply increases and inflation stabilises, offering a breath of fresh air in an economy where the cost of goods often puts severe pressure on citizens.

This was not the case this year in February. Despite being a harvest season, when traders rush to unload their items in storage in anticipation of increased supply in the market, food inflation has reached 25.1pc. This pushed headline inflation to 21.8pc last month, its second highest level in the past six years.

The rise in prices has been no less steep for Ethiopia’s staple food, teff, an indigenous cereal crop used to make injera. Within the past two months, white and red teff has gone up by 400 Br and 300 Br a quintal, respectively, an increase of around 10pc. Consumers with lower incomes have been forced to transition to the red teff, a less popular variety of the cereal, and mix it with rice and maize to meet their nutritional needs.

There is confusion over why the cost of food has not been letting up for the past two years. Factors from supply shortages to population growth and natural disasters are blamed. Farmers stress that no extra cash is going into their pockets and that intermediaries are hogging all the profits from the increase in the price of food.

This is a view shared by the government. But the authorities and policymakers are of the opinion that a permanent means of addressing the problem is improving productivity. They argue that agricultural productivity has increased by 21pc since the 2014/15 fiscal year, and commercial clustering, the introduction of contract farming and tax exemption for agricultural equipment to improve mechanisation could help improve that number further.

Experts knowledgeable of the agricultural sector do not believe that the government's approach is incorrect. They cite an increased money supply in the market and long supply chains as causes of the problem, as well as low productivity. But they also insist that short-term plans, such as subsidisation of major food items, can alleviate some of the problems. This will be prudent, they believe, especially as the global outbreak of the Novel Coronavirus disrupts supply chains and causes further inflationary pressure.

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PUBLISHED ON Mar 17,2020 [ VOL 20 , NO 1038]

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