Presented by Paul A. Dorosh Presented at 2015 ECAMA Research Symposium Malawi Institute of Management (MIM), Lilongwe, 4-5 June 2015

1. Cereal Price Stabilization in East Africa:
Implications of International Experience
Paul A. Dorosh, Bart Minten and David Stifel
IFPRI
Economics of Malawi (ECAMA) 2015 Research Symposium
Lilongwe, Malawi
June 4 and 5, 2015

2. Page 2
Cereal Price Stabilization in East Africa
• East Africa: Evolution of Maize and Wheat Prices
• Price Stabilization: Competing Approaches
• Utilizing Trade to Stabilize Prices
• Bangladesh 1998
• Madagascar Rice Crisis 2004
• Principles of a Price Stabilization Strategy
• Utilize international trade, not just stocks
• Promote private sector trade
• Ensure transparency and predictability of policies

3. Page 3
Domestic cereal prices in East Africa: 2006-2013
0
200
400
600
800
1000
1200
US$(2014)/ton
Ethiopia Wheat Ethiopia Maize Kenya Maize Uganda Maize

4. Page 5
Cereal Price Variability in East Africa
• Domestic prices of maize in Ethiopia and Kenya
and of wheat in Ethiopia were more stable than
border prices (international prices converted to
local currency units using nominal exchange
rates).
• This is largely due to the large spike in international
prices in 2007 and 2008.
• Domestic prices in real local currency units were
most stable for wheat in Ethiopia (c.v. = 0.139)
which at times actively used imports to stabilize
markets, and least stable in Uganda, which had
relatively connection with major international
markets.

5. Page 6
Cereal prices in East Africa:
Average 2000-2012
Pworld($) Ex rate Pborder Pdom Pdom($) Pborder/CPI Pdom/CPI
$/ton lcu/$ lcu/kg lcu/kg $/ton Lcu (2000)/kg Lcu (2000)/kg
Ethiopia wheat
Mean 291.14 15.89 5.21 6.25 395.03 1.42 1.75
CV 0.173 0.165 0.298 0.195 0.127 0.182 0.139
Ethiopia maize
Mean 240.01 15.89 4.34 4.13 259.82 1.17 1.13
CV 0.262 0.165 0.354 0.285 0.154 0.226 0.174
Kenya maize
Mean 240.01 83.21 22.69 29.69 371.20 25.28 34.92
CV 0.262 0.063 0.275 0.237 0.178 0.152 0.176
Uganda maize
Mean 240.01 2364.45 650.85 639.26 268.35 322.35 283.90
CV 0.262 0.106 0.312 0.334 0.297 0.165 0.291
Domestic prices of maize in Ethiopia and Kenya and of wheat in Ethiopia were more
stable than border prices.
Domestic prices in real local currency units were most stable for wheat in Ethiopia
(c.v. = 0.139) which at times actively used imports to help stabilize prices.

6. Page 9
Price Stabilization: Competing Approaches
Model 1 Model 2 Model 3
Rely on markets with Primary reliance on Role for markets with
limited role of state markets with rules-based discretionary state
role of state intervention
• Role of state limited to • Role for rules-based • Based on premise that the
State operations private sector cannot ensure
• Public goods investment adequate food supplies in
• Buffer stock release response to production
• Regulatory framework in response to defend shortfalls
stated ceiling price
• Strengthening of institutions • Justification for
and property rights • Marketing board unconstrained role for
purchases at stated state intervention in
• Policies supportive of floor price announced markets to correct for
private sector entry and in advance market failures
competition
• Transparent rules for
Initiating state imports
• Public goods invest-
ments
Source: Jayne and Tschirley (2009).

7. Government Cereal Market Interventions
in Bangladesh, India and Pakistan
(averages for 2000-07)
Pakistan India India Bangladesh Bangladesh
Wheat Wheat Rice Wheat Rice
Production (mn tons) 20.33 70.51 87.23 1.21 25.68
Procurement (mn tons) 3.89 16.09 22.52 0.11 0.88
Share of production 19.2% 23.0% 25.7% 6.7% 3.4%
Stocks (mn tons) 1.16 17.06 16.40 0.23 0.54
Stocks (kg/capita) 7.6 16.2 15.4 1.7 3.8
Distribution channels Subsidized Subsidized Subsidized Targeted Targeted
sales to sales through sales through Distrib Distrib;
flour mills PDS PDS (FFW, etc.) Sales
Source: Dorosh (2009).

8. India – Production Subsidies and
Public Stocks
• Beginning in the late 1960s, India adopted policies to
promote a Green Revolution in cereal production
• Investments in agricultural research and externsion
• Government procurement of rice and wheat at high prices
• Subsidies to fertilizer, irrigation water and electricity
• By the early 1980s, India was self-sufficient in cereals
and large scale food aid flows ended – national food
security had been achieved.
• Political pressure to increase support prices led to a
sharp increase in the volume of procurement in the
early 1990s and in public stocks.

9. India: Central Pool Public Stocks of Rice and
Wheat, 1980-2008
Rice
Wheat
0
10
20
30
40
50
60
70
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
MillionTons
Data are for January 1 of each year.
Source: Calculated from data from Government of India, Department of Food and Public Distribution.

10. Managing the 1998 flood in
Bangladesh
• Reforms in the early 1990s allowed private trade in grains
• Private imports responded to domestic supply and demand
conditions as reflected in the domestic price
• In 1994-95, the private sector imported rice from India,
stabilizing prices at import parity levels
• In 1996-97, domestic prices were below import parity levels
and private sector imports were essentially zero
• Following a massive flood in mid-1998, 2.4 million tons of private
sector imports stabilized domestic prices at import parity levels
• At the same time, the government scaled up public safety net
programs (Vulnerable Group Feeding and Food for Work)

11. Rice Prices and Quantity of Private Rice Imports in
Bangladesh, 1993-2000
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
Jul-93
Jan-94
Jul-94
Jan-95
Jul-95
Jan-96
Jul-96
Jan-97
Jul-97
Jan-98
Jul-98
Jan-99
Jul-99
Jan-00
Price(Taka/kg)
0
50
100
150
200
250
300
350
400
Imports('000MT)
Private Sector Imports Import Parity(ex: Bongaon) Dhaka Wholesale Price Import Parity(ex: Delhi)
Source : Dorosh (2001).

12. Bangladesh: Monitoring Markets
• Comparisons of import parity with domestic prices
• Margins between import parity (inclusive of taxes) and domestic
wholesale prices were checked for changes that could not be
accounted for by changes in costs (an indication of possible
economic rents)
• Analysis of letters of credit
• Data on letters of credit were used to show how many traders
participated in imports and their market shares
• Dialogue with private traders
• Discussions with traders helped inform government analysts to
rapidly changing conditions in international markets, shipping, port
problems and domestic transport
• This dialogue also provided an opportunity for sharing of
information regarding government policies and concerns of
domestic traders

13. Madagascar’s Rice Policy
• Madagascar liberalized rice markets in the mid-1980s
• Over the period 1995–2003 private sector imports
averaged about 5% of total supply each year, stabilizing
rice prices in the months before the major rice harvest.
• Nonetheless, over this period, the country retained
high import tariffs and taxes to protect domestic
producers

14. Madagascar: Rice Prices and
Imports, 1995-2004
0
1000
2000
3000
4000
5000
6000
Jun-95D
ec-95
Jun-96D
ec-96
Jun-97D
ec-97
Jun-98D
ec-98
Jun-99D
ec-99
Jun-00D
ec-00
Jun-01D
ec-01
Jun-02D
ec-02
Jun-03D
ec-03
Jun-04D
ec-04
Fmg/kg
0
5
10
15
20
25
30
35
40
ThousandMetricTons
Imports in '000 tons (3 month moving average) Retail Price Local Rice
Retail Price Imported Rice CIF Price (3 month moving average)
Source: Minten and Dorosh (2006).

15. Madagascar 2004:
Mixed Signals Contribute to a Crisis
• A production shortfall in early 2004 coincided with a rise in
world prices and a sharp depreciation of the currency.
• The slow pace of private commercial imports led the
government to float tenders for commercial imports of rice
BUT
• They left open the possibility that tariffs on these imports
might be waived or rebated.
• And set an official sales price below the tariff-inclusive
import parity price.

16. Madagascar: Rice Crisis 2004
The Result
• Private sector import trade was discouraged,
• The government did not have sufficient rice to meet all
demand at this official price, so it had to ration sales, and a
parallel market at a price above import parity levels
developed.
By destroying incentives for private trade, the
government unintentionally exacerbated price
instability.

17. Page 20
Principles: Stabilization Strategy
1) Utilize international markets, not just public
sector stocks
2) Promote private sector international trade
3) Maintain transparency & predictability of policies

18. Page 21
Utilize International Markets
1) Utilize international markets, not just public
sector stocks
o Import when domestic autarky (no trade) prices
are high relative to international border prices
o Export when domestic autarky (no trade) prices
are low relative to international border prices
o The alternative is to rely on public stocks – but this
can discourage private trade and can be very costly
o A judicious mix of public stocks and international
trade is often best.

19. Page 22
Promote Private Sector Trade
2) Promote private sector international trade
o Least cost
o Most efficient
o Quickest
 Helps to maintain market supply
 Enhances price stability (except in years of
extremely high or low international prices)

20. Page 23
Transparency and Predictability
3) Transparency & predictability of policies
o Uncertainty over government policy discourages:
o Private sector investment
o Domestic and international trade
o How to reduce uncertainty?
o Establish a platform for discussion and
information sharing between government,
traders, millers, etc.

21. References
Dorosh, Paul A. 2001. “Trade Liberalization and National Food Security: Rice Trade
between Bangladesh and India”, World Development, 29(4): 673-689.
Dorosh, Paul A. 2008. “Food Price Stabilization and Food Security: The International
Experience” Bulletin of Indonesian Economic Studies 44(1): 93-114.
Dorosh, Paul A. 2009. “Price Stabilization, International Trade and National Cereal
Stocks: World Price Shocks and Policy Response in South Asia”, Food Security
1(2):137-149.
Dorosh, Paul A., Bart Minten and David Stifel. 2015. “Cereal Price Stabilization in
Ethiopia: Implications of International Experience”, (manuscript).
Jayne, Thomas, and David Tschirley. 2009. “Food Price Spikes and Strategic
Interactions Between the Public and Private Sectors: Market Failures or
Governance Failures?” A paper presented at the FAO meeting on Institutions and
Policies to Manage Global Market Risks and Price Spikes in Basic Food
Commodities, Rome, 26–27 October 2009.
Minten, Bart and Paul Dorosh (eds.). 2006. Rice Markets in Madagascar in Disarray:
Policy Options for Increased Efficiency and Price Stabilization. Africa Region
Working Paper Series, Number 101, September. Washington, D.C.: World Bank.