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Recently, the Ethiopian central statistics Agency (CSA) rolled out a successful harvest story when April figures showed crop production surpassing the Ministry of Agriculture’s (MoA) targets for the Mehir season. MoA’s target was 205 million quintals of crops but the country harvested 218.5 million quintals; a 7.4 percent increase.
Impressive! One would think this would mean prices would go down. Yet, not only has there been no relief, food prices have spiked even higher leading the public to throw in the towel. The ABC of economics teaches that when there is surplus in production, prices, in most cases, go down because people figure out how to get more out of the existing resources. It seems this widely accepted understanding is no reality in Ethiopia.
This counter-intuitive world where prices go up as crop production increases and where the harvest season brings little relief, means Teff went up to a record 1,650 birr per quintal. Wheat and sorghum are currently 950 birr per quintal. The price of Teff, wheat or sorghum was much less before the season’s harvest was reaped.
Add to this fact that three million quintals of wheat were imported through the Ethiopian Grain Marketing Enterprise as reported by Trade Minister Kebede Chane, during his six month performance report to parliament; and economics 101 seems thrown out the window.
In some cases external factors push prices up. Ethiopia exports coffee, oilseeds, pulses, spices and other products every month. The CSA figure shows that in the second and third quarters of 2011 and 2012 exports of these products (except coffee) met the set target. Ethiopia still gets the highest foreign currency share from the export of these crops.
Ethiopia remains the fastest growing and most attractive place for investment in the sub-Saharan African countries.
And even though some in Africa are eating better than ever, there is still the horror of drought, haunting shortages of food, lack of clean and running water. Feeding people in Africa is still problematic especially during drought and even during times of abundant rain. Five years ago ‘the Green Drought’ in Ethiopia hit like never before.
Like the Green Drought, the increase of price while crop production is on the rise is confusing. What is the reason for this mystery? The Trade Ministry accuses the ‘greedy businessmen’ for the rise of prices. The solution suggested was to use the Ethiopian Grain Marketing Enterprise for fair distribution and to stabilize the market. So far it didn’t work.
This may be interpreted as ‘an artificial inflation which is imposed on the people by the greedy business people.’ It is true that people are the major actors in production and transactions. However, it was through almost those same business people that the country registered low prices for years.
This shows that it is difficult to accept what is presumed by the Minister of Trade. Concerning inflation the CSA argues that the escalation in prices was mainly driven by surging costs of food items. Food prices that consume up to 60 percent of an average family’s income soared by 47.4 percent in just one month. This was the February report of CSA.
“In February 2012 increases were observed in the prices of cereals, pulses, vegetables and fruits and spices,” said CSA in its February consumer price indices’.
Even Prime Minister Meles Zenawi admitted that despite the government’s measures to curb inflation, prices of various commodities are not showing improvement. “The effort to bring inflation down to single digit by the end of the budget year will not meet its target,” Meles told the House of Peoples’ Representatives in May when he presented the federal government’s nine month performance.
In the five year Growth and Transformation Plan (GTP) the government targets inflation to be as low as four percent. The February, March and April climb in the cost of living however has now reversed the latest easing of prices and presented a fresh challenge for the government.There are more questions than answers. Is it possible to meet the GTP target? Do we expect he decline of prices in the coming months? CSA hopes the country will collect more than 18 million quintals of crops from the Belg season both from small holder farmers and commercial farms. If the expectation of the CSA materializes, the annual crop production will swell to 237 million quintals.
Still we find it difficult to get answers for the questions raised. Prices are still going up despite the good hope and the practical response of the government to import agricultural products (wheat) to ease the pressure of inflation.
When this odd situation occurs, the heavy interference of the government is necessary. True, trying to import wheat and to have fair distribution is considered an intervention. But readjustment of the income of the government employees, reduction of taxes or subsidizing the ever rising fuel prices would play a greater role in reducing the ugly forces of the almighty inflation.
If this is done it may be possible to strongly challenge the advance of inflation. If the government interventions remain restricted this confusing and ‘abnormal norm’; price increases when crop production increases, is highly likely to get out of control.