The Ukraine Crisis & African Economies: Impacts on Commodity Markets in Kenya

1. The Impact of the Ukraine-Russia Crisis on Commodity
Prices in Local Markets in Kenya
Paul Guthiga
Senior Scientist & Technical Lead ReSAKSS-ESA, AKADEMIYA2063

2. Introduction [1]
 The war in Ukraine caused a disruption in global trade, through supply chain disruptions
and a hike in commodity and energy prices
 The impacts were transmitted (to a varying extent) to domestic markets across the
continent
 Why is the crisis of significance to the continent?
 The actors in the conflicts are major players in gobla grain trade (approx 25% of wheat; 15% of maize)
 They are major exporters of fertilizer, oil and natural gas
 Many countries in the continent rely on imports to meet local demand
 Even for those that do not import directly from Russia/Ukraine, disruption is felt through ‘contagion
effect’ transmitted through primary trading countries (Badiane at al, 2022)
 Measures need to be taken to protect the welfare of the affected people
 Changes in prices were expected to be higher after the war and likely to remain high in
the medium term

3. Introduction [2]
 Kenya relies largely on imports to meet its demand for wheat, rice, sugar, cooking oil and fuel
 The country is a producer of sugar and rice but total production does not need local demand
 Russia is the major wheat import source for Kenya;
 In 2020/2021 imports from Russia accounted for 31% of the total of wheat imports into the country
(1,888,900 MT)
 Sugar imports are mainly sourced from the Southern Africa countries including Malawi, Zambia, Eswatini and
South Africa
 The country imports about 400,000MT of sugar annually
 About 90% of rice consumed in Kenya is imported;
 About 50% is imported from Tanzania while a substantial amount is imported from Asian countries such as
Pakistan and India
 Similarly, more than 80% of cooking oil is also imported
 Cooking oil is met through imports mainly from South East Asia in 2020, the country imported about
700,000 Mt of vegetable oil mainly from South East Asia
 Given this dependence on imports, the country is vulnerable to global price fluctuations

4. Data & Method [1]
 Weekly price data for select basic food commodities (rice, sugar, wheat flour, cooking
oil) and energy (Petrol, Diesel and Cooking gas [LPG]) were analyzed
 Data is recored 5 times in a month [recored in Ksh/kg for dry food commodities and
Ksh/liter for cooking oil and fuel]
 The brief was prepared using an initial data set (Jan-June 2022) sourced from the
Ministry of Agriculture & Livestock Development (MoALD) & Energy and Petroleum
Regulatory Authority (EPRA)
 Analysis focused on four (4) markets:
 Two markets in urban setting; Kangemi (in Nairobi County), and Ahero (in Kisumu County) &
 Two markets in rural areas; Bungoma and Kirinyaga

5. Data & Method [2]
 The analysis involved tracking changes in weekly price since January 2022 till
end of June 2022 and comparing those changes with the observed changes
in global prices of same commodities (or their derivatives)
 The global prices were obtained from the World Bank Commodity Market
Outlook data which estimates monthly prices for around 46 commodities
 The comparison shows the extent to which prices in local markets have
responded to global changes and the extent to which these changes
compare across local markets and with the global price movements

6. Data & Method [3]
 Difference-in-difference analysis (for select commodities) was conducted to
control for other potential causes for price changes
 How was DiD done?
 Long term av. monthly prices for select commodities (2017-2021) compared to changes
in 2022 and another ‘normal’ year (2019)
 Month-to-month price changes [1st difference] generated (For the 2017-2021) and for
2019 and 2022
 Difference in price changes [2nd difference0 generated for 2019 and 2022 (if no
difference, then price changes observed in 2022 are normal)

7. Findings: Food price changes in urban markets [1]
 The price of sugar rose significantly in both urban (Nairobi by 92.59%, Kisumu by 80%)
 In Nairobi, the price of wheat increase by 24% between the first week of February and the last week of June but
was still slightly lower compared to the price at the beginning of January
 In Kisumu the price of wheat flour continued its upward trend though June and was 36% higher in the last week of
June compared to the level at the beginning of January
 The price of rice dropped slightly in Nairobi (16.67%) and rose by 50% in Kisumu between Jan and Jun
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Figure 1: Weekly prices in Nairobi
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Sugar Wheat flour Rice Cooking oil
Figure 1: Weekly prices in Kisumu

8. Findings: Food price changes in rural markets [2]
 In Bungoma wheat price increase was recorded (43% increase between January and June)
 Wheat price declined by 12% in Kirinyaga from Kshs 130/kg in January to Kshs 112/kg in June 2022 due to localized
‘surplus’ arising from the early harvest that runs from June to December
 The price of sugar rose significantly in both rural markets (100% in Kirinyaga, 80% in Bungoma) markets by June
compared to January
Figure 3: Weekly prices in Kirinyaga
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Figure 4: Weekly prices in Bungoma

9. Findings: Food price changes in rural markets [3]
 The price of rice dropped by 11.11% in Kirinyaga between January and June
 Kirinyaga is a rice producing area and the decline in price was due to rice harvest that
increased local supply and reduced the price
 In Bungoma which is not a rice producing area, the price of rice rose by 44% over
the same time

10. Findings: Trends in Weekly Energy Prices for Nairobi [4]
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Petrol Diesel Cooking gas
Figure 5: Weekly energy prices in Nairobi (Jan-June 2022)
 The price of fuel (petrol & diesel) and cooking gas were the same in different markets because prices are
regulated by the Energy and Petroleum Regulatory Authority (EPRA) and are only reviewed monthly
 Overall, the price energy commodities rose by last week of June compared to first week of January 2022
 Petrol (+23%)
 Diesel (+27%)
 Cooking gas (+12%)

11. Findings: Trends in Weekly Energy Prices for Nairobi [5]
 The rise in energy prices continued beyond June; by December 2022, the price of diesel was 47%
higher than it was in January
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Figure 6: Monthly Diesel Price in Nairobi (Jan-Dec 2022)

12. Findings: Comparing Price Changes in Local and Global Markets [6]
 Changes in global prices of commodities
are to some extent similarly reflected in
local markets
 But for some commodities, local dynamics
influenced prices in a different way
 The price of wheat in local markets also
declines by June compared after an initial
rise in March-April period
 Price of cooking oil and energy products
rose similarly to the global prices
 Price of Sugar rose at a much higher rate
Table 1: Summary of Price Changes: Comparison between Local
Markets and Global Averages (Jan-May 2022)
Commodities Global price
change (%)
Change in
local urban
market
(Nairobi)
Change in
local rural
market
(Kirinyaga)
Wheat +40% -14% -14%
Sugar +3% +93% +100%
Rice +10% -17% -11%
Cooking oil +19% +27% +27%
Fuel Crude Oil- +31% Diesel- +20%
Petrol- +11%
Diesel- +27%
Petrol- +23%
Liquefied
petroleum gas
+28% +12%

13. Findings: Comparing Price Changes in Local and Global Markets [7]
 This was partly driven by local production but action by government to open new import markets
helped dampen the initial rise in price
 The energy prices have risen in the same direction and partly similar magnitude;
 A 31% and 28% rise in global price of crude oil and LPG, respectively, is reflected in rise of diesel
and petrol prices of 20% and 11% in Nairobi respectively &
 Cooking gas rose by (+12%), in Nairobi compared to a global rise of (+28%)

14. Findings: difference-in-difference analysis [8]
 The changes in the price of cooking oil in Nairobi are significantly higher in the first 6 month of
2022 compared to average of past 5 years and expected changes in a ‘normal year’
 The sharp rise in the Feb-Mar period is significantly higher than observed changes historically in the past six
years
Differences between monthly prices in
each period
Difference-in-difference (2019 & 2022 -
2017/21 period)
Month
Av 2017-
2021 2019 2022Av 2017-2021 2019 2022 20192021 Var 2019 Var 2022
Jan 196 186 205 Jan
Feb 198 189 229 2 3 24Feb 1 22 1% 11%
Mar 201 190 312 3 1 83Mar -2 80 -1% 35%
Apr 200 191 332 -1 1 20Apr 2 21 1% 7%
May 203 182 352 3 -9 20May -12 17 -6% 5%
Jun 203 182 370 0 0 18Jun 0 18 0% 5%

15. Findings: difference-in-difference analysis [9]
 The changes in the price of Petrol in Nairobi were not significantly higher in the first 6 month of 2022
compared to average of past 5 years and expected changes in a ‘normal year’
 The observed changes are within the bounds of the historical trends
Differences between monthly
prices in each period
Difference in difference (2019 &
2022-2015/21 period)
Month
Av 2017-
2021 2019 2022
Av 2017-
2021 2019 2021 20192021 Var 2019 Var 2022
Jan 105 103 128 Jan
Feb 108 101 128 3 -2 0Feb -5 -3 -5% -2%
Mar 109 102 135 1 1 7Mar 0 6 0% 5%
Apr 107 108 145 -2 6 10Apr 8 12 8% 9%
May 107 113 150 0 5 5May 5 5 5% 3%
Jun 108 116 159 1 3 9Jun 2 8 2% 5%

16. Conclusions and implications
 The brief found that there has been a general rise in price of food and energ
commodities in Kenya reflective of similar changes at the global level
 For some commodities like sugar, local prices rose more sharply than the global price
with some difference in price change patterns between rural and urban areas
 For some commodities (like cooking oil), the rise is significantly higher compared t
historical trend
 The rise in prices is of concern to policy makers hence eed to protect the most vulnerabl
through targeted social protection
 Long term measures to deal with global shocks
 More freer regional trade
 Boosting agricultural production
 Invest in energy efficient/saving technologies

17. References
1. Badiane, O.; I. Fofana; L. M. Sall; and B. Cesay. 2022. Contagion and Exposure of African Countries to
Global Wheat Trade Disruptions. Ukraine Crisis Brief Series, No.1. Kigali and Dakar. AKADEMIYA2063.
2. FAOSTAT. Accessed on June 10th 2022. https://www.fao.org/faostat/en/#data
3. World Bank. Accessed on June 10th 2022. https://www.worldbank.org/en/research/commodity-
markets

18. THANK YOU