Memorandum submitted by Mohammad Pournik,
Principle Economic and Governance Advisor, United Nations Development
Programme Yemen
RISING FOOD PRICES IN YEMEN
NATURE AND
EXTENT OF
THE PROBLEM
Over the past year the price of most major food
staples have gone up by upwards of 40% at an international level
and given very low levels of local production of most staples,
the changes in international prices should have been passed on
to the Yemeni consumer. The OPI index does not fully capture the
actual increase in costs due to the fact that prices are only
collected for major urban centres and do not appear to allow for
changes in quality and in the case of bread the quantity involved.
For example the price series produced by the Central Statistical
Organization for the period up to December 2007, shows no change
in the price of bread, while it is general knowledge that the
weight of the average loaf of bread halved during this period.
The CPI data show an increase of 8.5% in the overall OPI and 11%
in the index for food over the period from December 2006 to December
2007, but do reflect an increase of around 60% in the price of
imported wheat, and of some 55% in the price of flour in the course
of 2007.
It is interesting that during the same period
the price of domestic wheat rose by 26%, and the price of domestic
barley by only 13%. A careful evaluation of the factors that account
for this differential price behaviour between domestic and imported
cereals is needed in order to assist in the formulation of appropriate
policies for maximizing the benefits of rising international food
prices for domestic producers. The fact that prices for local
grains have gone up by less than for imported grains has implications
for potential supply response, and essentially should lead to
less of a response than could prevail if producers were able to
receive higher prices. In addition, the prices reflected in the
CPI data relate to market prices, and there is need for understanding
what is happening to farm gate prices before any predictions about
likely supply response can be made.
The discrepancy between what one knows has been
happening to food prices in Yemen in the recent past and what
is reflected in OPI data calls for a careful review of th way
in which price data are collected and the changes in relevant
indices calculated. In addition, price data are only available
for urban areas. It is thus difficult to assess the impact of
rising food prices on rural poverty. Given the fact that poverty
is very much a rural phenomena in Yemen, with the rate of poverty
not showing any significant change in rural areas in the period
between 1998 and 2005-06, it is important to get an accurate measure
of current level of food prices in rural areas, in order to asses
the impact on poverty. However, it would be correct to assume
a significant increase in the level of poverty in Yemen subsequent
to the rise in food prices experienced since January 2007.
EXPECTED INTERNATIONAL
FOOD PRICES
IN THE
MEDIUM TERM
There appears to be general consensus that at
best international food prices will stabilize at current levels
and at worst they will keep rising, though no one expects them
to continue to increase at the high double digit rates experienced
over the recent past. What this means is that the era of a secular
decline in the real price of food items that started with the
green revolution of the 1970s is at best on hold if not reversed
permanently. This has major implications for countries like Yemen
that allowed their food production systems to decline, with local
production replaced by cheap food imports, and agricultural land
diverted to more lucrative crops, with Quat being a major beneficiary
of increased production in Yemen.
SOME INITIAL
IDEAS FOR
RESPONDING TO
THE CHALLENGE
OF HIGH
FOOD PRICES
With prices and supply constraints expected
to remain high, it makes imminent sense for Yemen to radically
review the development path it has been following, which has allowed
the agricultural sector's contribution to GOP in current prices
to fall from over 24% in 1990 to a mere 10.5% in 2005. What is
even more worrying is that the share of food production in agricultural
GOP has fallen substantially during the same period, with the
country being 75-95% dependent on imports for key food staples,
while Yemen was self sufficient in food some 20 years ago.
The Government has already taken certain steps
to ensure physical availability of food through encouraging greater
imports, and provided an extra allowance of 3,000 Rials to each
civil servant to assist them to partially cover the cost of higher
food prices. These measures only provide partial relief and given
the lack of voice of women in decisions about the use of family
income the salary supplement will not necessarily lead to a lesser
reduction in food intake within the beneficiary households.
Given what is known about the high levels of
poverty and food insecurity, particularly in rural areas, certain
immediate steps should be taken. With over 40% of the rural population
already found to be below the extreme poverty line in 2005-06,
prior to the major price rises experienced since December 2006,
it is clear that by now a near majority of the population risks
being under the poverty line. In view of the costs and time delay
associated with designing and implementing a targeted subsidy
programme and the long term damage that worsening nutrition can
do to the younger generation growing up in poor households, it
is advisable to introduce some self targeted general subsidy programmes
on food, through for example covering part of the cost of inferior
grains or bread using coarse flour. There is also a need to immediately
expand the programme of support to food insecure households and
malnourished children implemented by WFP and UNICEF. WFP and UNICEF
already have a solid information base and established procedures
for monitoring the implementation of their programmes, and hence
expanding the depth and breadth of coverage of such programmes
can be done reasonably quickly with minimal extra operational
costs, as existing systems can be used more intensely The funding
for such an expansion of the programme would most likely have
to come from national resources, which could be released through
early partial reduction in the fuel subsidies that were found
by the latest GOY, WB and UNOP poverty survey to mostly benefit
the better off segments of society. Donors can also be expected
to provide increased funding to WFP and UNICEF to initially cope
with the rising cost of their earlier programmed volume of assistance,
given the rising per ton cost of all food items provided, and
hopefully allow them to expand coverage. Without additional donor
funding it is expected that WFP might end up having to reduce
the volume of wheat it delivers from some 15,000 tons to under
9,000 tons at a time when the need for such assistance has certainly
increased substantially.
27 March 2008
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