IMPACT OF RICE PRICES ON FOOD INFLATION IN ZANZIBAR, 2007-2012

Do Rice prices drive inflation?December 18th, 2012

Introduction Study objectives Methodology Findings Conclusions Recommendations

Outline

Zanzibar out-sources about 41% of its annual food requirements with major imports being rice, sugar, maize and wheat flour (MALE, 2006)

Rice imports accounted for 83.3 % (FBS, 2011). Food accounted for the highest weight of 57.4 %

(2008) in CPI basket Out of this, imported rice accounted for 20.8 %

(BOT, 2009). From 2007-12, Rice prices went up by 112%.

1.0 Introduction

2,002 2,003 2,004 2,005 2,006 2,007 2,008 2,009 2,010 2,011 -

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Figure 1: Zanzibar Rice Imports and Production (MT), 2003-2011

Imports(MT) Production(MT)

Years

MT

Introduction

Volatile and relatively high food inflation Households spend about 60 % of their budgets

on food purchases(HBS 2009/10) High Protein-Energy Malnutrition levels in

Zanzibar (DHS 2010)◦ 26% undernourished ◦ Stunting (30%), Wasting(12%), underweight (19.9%)◦ 13% below food needs poverty line (HBS 2009/10)◦ 45% below basic needs poverty line (HBS 2009/10)

Introduction

Jan-

06

Apr-0

6

Jul-0

6

Oct-0

6

Jan-

07

Apr-0

7

Jul-0

7

Oct-0

7

Jan-

08

Apr-0

8

Jul-0

8

Oct-0

8

Jan-

09

Apr-0

9

Jul-0

9

Oct-0

9

Jan-

10

Apr-1

0

Jul-1

0

Oct-1

0

Jan-

11

Apr-1

1

Jul-1

1

Oct-1

1 -

200

400

600

800

1,000

1,200

1,400

Figure 2: Domestic retail Prices and Thailand FOB Prices(Tshs), 2006-2012

Rice Retail Prices Thai FOB

Tshs

Introduction

To analyze the effect of rice prices on inflation in Zanzibar, 2007-2012

To examine the relationship between international rice prices and domestic rice prices in zanzibar,2007-2012

2.0 Study Objectives

Reviewed existing secondary sources Collected monthly prices of Thailand Rice locally

known as Mapembe and inflation for the period, 2006-2012

Conducted econometric analysis and estimation 

3.0 Methodology

Table 1: Summary Output/Regression StatisticsHeadline Non-Food

InflationFood Inflation

Multiple R 0.787651527 0.683106 0.776144377

R Square 0.620394928 0.466634 0.602400093Adjusted R Square 0.61436945 0.458168 0.596088984

Standard Error 3.70253037 4.287694 4.644363492

Observations 65 65 65

4.0 Findings

Table 2: Regression Results , January 2007-June 2012

 

Coefficients

Standard Error t Stat

P-value

Lower 95%

Upper 95%

Intercept 8.972

0.597

15.032

0.000

7.779

10.165

Rice Prices

0.201

0.020

10.147

0.000

0.162

0.241

Headline inflation and Retail Rice prices

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep-

07

Nov-0

7

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-

08

Nov-0

8

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Nov-0

9

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep-

10

Nov-1

0

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep-

11

Nov-1

1

Jan-

12

Mar

-12

May

-12

(40)

(20)

-

20

40

60

80

100

Figure 3: Headline Inflation and retail Rice Prices (12 months % change)

Zanzibar Rice Retail Prices(Tsh.) Headline

Headline inflation and Retail Rice prices

Table 3: Regression Results , January 2007-June 2012

 

Coefficie

nts

Standard

Error t Stat P-value Lower 95%

Upper 95%

Intercept

6.925

0.691

10.019

0.000

5.544

8.306

Rice Prices

0.171

0.023

7.424

0.000

0.125

0.216

Non-Food Inflation and Retail Rice Prices

Jan-

07

Jun-

07

Nov-0

7

Apr-0

8

Sep-

08

Feb-

09

Jul-0

9

Dec-0

9

May

-10

Oct-1

0

Mar

-11

Aug-

11

Jan-

12

Jun-

12

Nov-1

2 (40)

-

40

80

Figure 4: Non-food Inflation and Zanzibar Rice Prices (12 months % change)

Non-FoodZanzibar Rice Retail Prices(Tsh.)

% c

han

ge o

ver

12

mon

ths

Non-Food Inflation and Retail Rice Prices

Table 4: Regression Results , January 2007-June 2012

 

Coefficie

nts

Standard

Error t Stat P-value Lower 95%

Upper 95%

Intercept

10.310

0.749

13.771

0.000

8.814

11.806

Rice Prices

0.243

0.025

9.770

0.000

0.193

0.293

Food Inflation and Retail Rice Prices

Jan-

07

Apr-0

7

Jul-0

7

Oct-0

7

Jan-

08

Apr-0

8

Jul-0

8

Oct-0

8

Jan-

09

Apr-0

9

Jul-0

9

Oct-0

9

Jan-

10

Apr-1

0

Jul-1

0

Oct-1

0

Jan-

11

Apr-1

1

Jul-1

1

Oct-1

1

Jan-

12

Apr-1

2

Jul-1

2

Oct-1

2 (40)

(20)

-

20

40

60

80

100

Figure 5: Food Inflation and Retail Rice Prices (12month % change)

Food Inflation Zanzibar Rice Retail Prices(Tsh.)

% c

han

ge

ove

r 12

mo

nts

Food inflation and Retail Rice Prices

A comparison of Zanzibar and Thailand Rice Prices

Rice importers usually take one-

two months to respond to the

changes in Thailand import

prices

Jan-

06

May

-06

Sep-

06

Jan-

07

May

-07

Sep-

07

Jan-

08

May

-08

Sep-

08

Jan-

09

May

-09

Sep-

09

Jan-

10

May

-10

Sep-

10

Jan-

11

May

-11

Sep-

11

Jan-

12

May

-12

-

200

400

600

800

1,000

1,200

1,400

1,600

-

100

200

300

400

500

600

700

800

900

1,000

Figure 6: Zanzibar Rice Prices (lagged one month) and Thai Import prices ,2007-2012

Zanzibar Rice Retail Prices Thai FOB ($/ton) Thai FOB

Zanzib

ar

Ric

e R

eta

il P

rices (

Tsh/K

g)

Thailand

Ric

e I

mport

Pri

ces(U

S/T

on)

Jan-

06

Mar-0

6

May-0

6

Jul-0

6

Sep-

06

Nov-0

6

Jan-

07

Mar-0

7

May-0

7

Jul-0

7

Sep-

07

Nov-0

7

Jan-

08

Mar-0

8

May-0

8

Jul-0

8

Sep-

08

Nov-0

8

Jan-

09

Mar-0

9

May-0

9

Jul-0

9

Sep-

09

Nov-0

9

Jan-

10

Mar-1

0

May-1

0

Jul-1

0

Sep-

10

Nov-1

0

Jan-

11

Mar-1

1

May-1

1

Jul-1

1

Sep-

11

Nov-1

1 -

200

400

600

800

1,000

1,200

1,400

Figure 7:Zanzibar Retail Rice Prices and Thai FOB Prices (Tshs/Kg), 2006-2012

Zanzibar Rice Retail Prices(Tshs/Kg) Thai FOB (Tshs/Kg)

A comparison of Zanzibar and Thailand Rice Prices

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep-

07

Nov-0

7

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-

08

Nov-0

8

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Nov-0

9

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep-

10

Nov-1

0

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep-

11

Nov-1

1

Jan-

12

Mar

-12

May

-12

(100)

(50)

-

50

100

150

200

250

Figure 8: Zanzibar Rice Retail Prices Vs Thai (FOB), (12 months % change)

Zanzibar Rice Retail Prices(Tsh.) Thai FOB ($/ton)

A comparison of Zanzibar and Thailand Prices

Zanzibar rice prices have been less volatile than Thai export prices and have generally followed Thai export prices

Thai import prices increased significantly from January-April 2008◦ Global financial crisis, world recession and petroleum oil

crises ◦ Subsequent export restrictions by rice producing

countries Accordingly, domestic prices responded to a

decline in world market prices (BOT, 2009).

Zanzibar and Thailand Rice Prices

Jan-

06

Apr-0

6

Jul-0

6

Oct-0

6

Jan-

07

Apr-0

7

Jul-0

7

Oct-0

7

Jan-

08

Apr-0

8

Jul-0

8

Oct-0

8

Jan-

09

Apr-0

9

Jul-0

9

Oct-0

9

Jan-

10

Apr-1

0

Jul-1

0

Oct-1

0

Jan-

11

Apr-1

1

Jul-1

1

Oct-1

10.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

Figure 9: % changes in Thai FOB and Zanzibar re-tail rice prices relative to 2006 (Price Index=100)

RetailThai FOB

A comparison of Zanzibar and Thailand Prices

A one percent increase in monthly Rice prices drove upwards monthly Headline, Non-food and food inflation by 0.201, 0.171 and 0.243 percent respectively .

Retail prices of Thailand Rice in Zanzibar did not cause significant additional price inflation far beyond their weight in the CPI basket of 20.8 percent for either food or non-food Items as had been earlier anticipated.

Zanzibar Retail Rice prices do closely follow Thai Import Prices

For some periods, the 12 months % change in Zanzibar Retail Prices was relatively higher than Thai Import prices

5.0 Conclusions

Continue with investments in domestic rice production to drive down the relatively high and increasing prices of rice.

Eliminate barriers of entry into the current rice import trade-It is oligopolistic with few importers (BOT,2009).

Reduce/Lift rice import duties mainly during periods of food crises.

6.0 Recommendations

Support competition in food import to stabilize/reduce prices at local markets

Traders be encouraged to expand the range of rice import countries.

Initiate targeted social protection policies for low income and food insecure households

Identify and address other factors driving high (double digit) food inflation

Recommendations