Market Watch

Ethiopia | March 2022

HIGHLIGHTS
• Inflation: Ethiopia’s inflation remained in two digits for the last three years, despite government efforts to contain
inflation to a single digit. The headline inflation slightly reduced from 34.5 percent in January 2022 to 33.6 percent in
February 2022; however, food inflation increased primarily driven by surging bread and cereals, and fats and oil
indexes, rising food inflation from 39.9 percent in January 2022 to 41.9 percent in February, the second highest rate in
a decade. The highest food inflation for February 2022 were recorded in Harari (49.9 percent), Gambela (48.3
percent), and Benishangul Gumuz (47.7 percent).
• Exchange rates: the National Bank of Ethiopia has slowed down the rate of creeping devaluation in February and
March, with 1USD for ETB 50.92 by March. On the parallel market, 1USD was exchanged for ETB 64 in February 2022.
• Implication of the war in Ukraine on food security in Ethiopia: prices of fuel, food (wheat and vegetable oil),
fertilizers, steel and iron have increased in the international markets since the war started. Ethiopia imports large
amounts of wheat, with about 25 percent of domestic demand for wheat met through imports. The price
transmission of wheat from global market is expected to be severe in Somali region. The price of fertilizer has nearly
tripled, which may constrain farmers from using fertilizer, with negative repercussions on production and food prices.
The elevation of the prices of iron and steel is expected to dampen employment opportunities in the construction
sector. As the Government of Ethiopia (GoE) is moving away from fuel subsidy, a surge in fuel pump prices will further
escalate the cost of living, both through food prices and supply chain-related fuel costs.
• Prices in conflict affected areas in Northern Ethiopia: When compared to prices in Dessie (reference market), the
prices of maize, sorghum, and wheat grain are 51, 39, and 21 percent higher in Mekelle. Imported items such as rice
and edible oil are being sold at prices that are 166 and 141 percent higher. A similar trend was recorded in Afar in
Sekota and Chifra markets, with higher prices for maize and sorghum observed when compared with Dessie markets.
• Terms of Trade (measure of purchasing power): in February 2022, an average sized goat in Kebridehar market of
Somali region could only fetch 62 Kgs of maize compared to the 118 kgs at the same time last year, while only 54 kgs
of wheat flour could be bought relative to 79 kg in February 2021.
• Market and food security outlook: Underpinned by the disruption due to the war in Ukraine, the broad supply of
money to finance the budget deficit, the production loss and trade disruption due to the ongoing conflict in Northern
Ethiopia, the anticipated spike in fuel pump prices and the upward tendency in the prices of food and non-food
commodities (including fertilizer, steel and iron, vegetable oil, etc) in the international market is expected to drive
inflation even to higher levels which worsens the food access among market reliant households.
Monthly Market Watch | Ethiopia CO | March 2022 Page 2 of 18

1. Inflation
1.1 Headline inflation slightly dipped to 33.6 percent while food inflation continued to
increase in February 2022

Official Consumer Price Index (CPI) reports by the Ethiopian Statistical Service shows that
headline inflation that had been in double digits for the past 39 months in a row, showed a
slight decline to 33.6 percent in February 2022, mainly due to a drop in the year-on-year non-
food inflation rate by 4.4 percentage points. In December 2021, the headline inflation hit 35.1
percent, the highest recorded in a decade, but it went down in the consecutive months of
January and February 2022. The slight drop in headline inflation in February 2022 shows a
decline in the rate of increase in the cost of living as measured by the CPI; however, it is still
33.6 percent higher than the CPI in February 2021, which means that the purchasing power of
households continues to grow weaker. There has been general upward pressure of inflation
since 2017 that coincided with the policy measure taken by the government of Ethiopia to
devaluate the Birr against the dollar by 15 percent with the objective of encouraging export.
Underpinned by the creeping devaluation implemented by National Bank of Ethiopia (NBE)
since November 2019, the inflation problem continued to be a major macro-economic
challenge in Ethiopia.

Figure 1: Inflation trends year-on-year

45
42 41.6 41.9
40 40.7 39.9
38.9
37.6
35 34.8 34.2 35.1 34.5
33 33.6
32
30 30.4
28.7
26.4 26.6 27.3
25 24.5 25.2 25.3 25.2
22.8 23.7 22.9
22 21.7
20 20.6 20.6 20.8
18.9 19.2 19.7 19 19
18
15 16
14.8

10
Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22

Headline Food Non-food

Source: Ethiopia Statistical Services (ESS) Consumer Price Index (CPI)

1.2 Food inflation in February 2022 hit the second highest level in a decade
The food inflation that constitutes around 54 percent of the overall weight of the national CPI
rose to 41.9 percent in February, the second highest in a decade, exceeded by just 0.1
percentage points recorded in September 2021. The food inflation increased faster than the
headline inflation over the past several years. The major supply-side factors that may have
driven the food index are: 1) relatively slow productivity growth in agriculture as compared to
the population growth rate; and 2) any increase in agricultural production is accompanied by a
decline in marketed supply following the improvement in access to credit and market
information which has reduced the farmers’ need for cash to take ‘surplus’ output they have to

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Monthly Market Watch | Ethiopia CO | March 2022 Page 3 of 18

the marketplace immediately after harvesting;1 and 3) the rising price of food commodities in
the global market particularly that of wheat, edible oil, and fertilizer transmits to the local
market since Ethiopia is partly dependent on the international market for import. The sharp
rise in food prices, especially the price of cereals, places an enormous pressure on consumers,
especially the poor and workers in the formal sector whose salaries are generally fixed in
nominal terms.

Figure 2 - the month-on-month CPI for food, which compares the price index in the current
month to the preceding month, trended relatively stable between October 2021 to January
2022, which is underpinned by the arrival of fresh harvest from meher season. However, it
once again surged by a strong 4.8 percent in February.

Figure 2: Month-on-Month changes of food CPI

Source: ESS Consumer Price Index (CPI) – February 2022

1.3 Price indices of breads and cereals and fats and oil are the major drivers of the surge
in food CPI recorded in February 2022

The major drivers of the food price indices in February are bread and cereals and fats and oil
which constitute around 17.4 percent and 4.34 percent of the overall CPI, respectively.

Oils and fats – the prices of oil and fats were relatively stable until a sudden spike in June 2021
which continued upwards until record levels in February, averaging at 289, largely driven by the
rise in the prices of vegetable oil in the global market that hit record high since 2014. The index
in February is 93 percent higher than the values a year earlier, suggesting that vegetable oil
prices have nearly doubled as compared to the price levels in February 2021.

Figure 3: Trends of CPI of food bread and cereals and fats and oils (July 2018- February 2022)
(December 2016 CPI=100)

https://www.researchgate.net/publication/346649752_The_Challenge_of_Inflation_and_Financing_Development_in_Ethi
opia_A_Kaleckian_Approach_with_Empirical_Result

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Monthly Market Watch | Ethiopia CO | March 2022 Page 4 of 18

340

290

240

190

140

90
Jan-19

Jan-20

Jan-21

Jan-22
Jul-18
Sep-18

Jul-19
Sep-19

Jul-20
Sep-20

Jul-21
Sep-21
Mar-19

Mar-20

Mar-21
May-19

Nov-19

May-20

May-21
Nov-18

Nov-20

Nov-21
Bread and Cereals Fats and oil

Source: ESS CPI, February 2022

Cereals and bread - the index for breads and cereals had experienced steep rise between
January and September 2021, during which the index rose by 51 percent. The trend since
October is more or less stable due to the arrival of fresh harvest in the market. However, in
February 2022, it is still 41 percent above last year the same month and 135 percent above
February 2020, two years ago. Since most of the household in Ethiopia spend between 18
percent and 33 percent of their incomes on cereals and derive around two-third of the dietary
energy from these items, any price increase in cereal could likely deplete the purchasing power
of households. Inflationary tendencies place a heavy food access burden for poor households
who earn income through employment as their bargaining power is depleted since their
wage/salary is not indexed to changes in the cost of living.

1.4 Food Inflation reported highest in Harari, Gambella, and Benishangul Gumuz

Figure 4 - Year-on-year food inflation hit the highest rate in Harari (49.9 percent), followed by
Gambella (48.3 percent), and Benishangul Gumuz (47.7 percent). Oromiya, SNNP, and Amhara
also registered high inflation slightly above the national average in February.

Figure 4: Year-on-Year food inflation by region, February 2022

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 Monthly Market Watch | Ethiopia CO | March 2022 Page 5 of 18

60.0

50.0
National average

40.0

30.0

47.7 48.3 49.9

42.2 44.3 45.0
20.0 39.2 37.9 40.6
35.9

10.0

0.0
Addis Afar Amhara B.Gumuz D.Dawa Gambela Harari Oromia SNNP Somali
Ababa
Source: Ethiopian Statistical Services’ Consumer Price Index (CPI)

1.5 Implications of the galloping inflation on “early life” maternal and child malnutrition
The prevailing galloping food inflation erodes the purchasing power of poor households, and
the cost of a nutritious diet will be beyond the reach of many households. This will undermine
the dietary diversity and overall dietary quality and total energy intake, with short term
implications of acute malnutrition (wasting) and long-term implications of chronic
undernutrition (stunting), compromised child growth and cognitive development. Under the
circumstance that food access is increasingly impeded by inflation, children during “early life”
and pregnant and lactating women – due to increased physiological needs – are more likely to
be at increased risk of malnutrition than any other population group. Food access constraint
due to inflation has far-reaching consequences on children’s health, potentially lifelong that
determine their future health, educational achievement, job market, family formation, social
behavior, and many other life-course outcomes. Furthermore, existing safety-net programs,
such as productive safety-net, targeted supplementary feeding, and relief interventions may
need to be tailored for families with pregnant women and children to provide a cushion against
“early life” malnutrition due to high food price inflation.

1.6 Measures taken by the Government bodies to mitigate the impacts of the inflation

Addis Ababa city administration has extended an eviction and rent increase ban for additional
three months until May 2022. The resolution bans landlords in the capital from either
increasing house rents or evicting tenants since last August2. Other regional governments are
also following suit and announcing the same measures. As house rents are very high and have
been increasing steadily in Addis Ababa and some major cities, these measures are expected to
relieve employed workers and self-employed poor households from increased burden of rent.

2. Currency Exchange Rates

2
The other measures taken are discussed in section 3 of this report.

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 Monthly Market Watch | Ethiopia CO | March 2022 Page 6 of 18

2.1 The official devaluation rate of the Birr against USD slowed down since the third week
of February

Figure 5- As part of the home-grown economic reform, the National Bank of Ethiopia has been
implementing a creeping devaluation of the Birr since November 2019. The aim of measure is
to encourage exports and curtailing imports. Over the past one-year period between March
2021 and March 2022, the Birr has depreciated by 26 percent against USD using the official
rate. However, the pace of devaluation has been slowed down since the last week of February
2022 at around 1 USD for ETB 50.92. After devaluing the Birr at the rate of 3 to 6 cents a day
against USD over the past two years, the rate has been slowed down to just 1 cent a day over
the past one month. The devaluation measure is criticized by some experts as one major cause
fueling inflation directly through raising the price of imports and indirectly by raising the import
bill of the government, which is a big spender in the economy. Thus, some experts discourage
devaluation till it is preceded by significant export and food production growth3. On the other
hand, other experts, including the World Bank and IMF, contend that the Ethiopian economy is
suffering from overvalued exchange rate and attributed the inflation to factors other than
devaluation such as instability and the surge in the prices of commodities in the global market 4.
The exchange rate in the parallel market, after dipping slightly in January, rose once again in
February to 64 Birr against USD. As a result, the gap between official and parallel market, which
stood around 17 percent in January, rose to a staggering 27 percent in February.

Figure 5: Trends of Official and Parallel market exchange rate (USD against Birr)
70
60
50
40
30
20
10
0
Jan

Jan

Jan

Jan

Jan

Jan
Jul

Nov

Jul

Nov

July

Nov

Jul

Nov

Jul

Nov
Sep

Sep

Sept

Sep

Sep
May
Mar
May

Mar
May

Mar
May

Mar

Mar
May

2017 2018 2019 2020 2021 2022

Parllel market Official

Source: NBE (official) and WFP (parallel)

The loss in the value of the Birr against major foreign currencies makes it more expensive to
acquire imported goods, consequently dictating the final price consumers have to pay for
purchase. Although exchange of foreign currency on parallel market is illegal in Ethiopia,
around half of the remittances transferred to the country is reported to go through the parallel
market5. Several traders also rely on the parallel market to access foreign currency to import
goods and services as getting foreign currency from the legal channel is difficult. This is

3
https://www.researchgate.net/publication/346649752_The_Challenge_of_Inflation_and_Financing_Development_in_Ethiopi
a_A_Kaleckian_Approach_with_Empirical_Result
4
https://documents1.worldbank.org/curated/en/586131512139181555/text/121807-BRI-PUBLIC-
thiopiaImpactsoftheBirrDevaluationonInflation.txt
5
https://www.theigc.org/blog/pass-through-shocks-and-income-the-impact-of-covid-19-on-remittances-in-ethiopia/

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 Monthly Market Watch | Ethiopia CO | March 2022 Page 7 of 18

particularly true in Somali region where a significant proportion of food is imported via informal
routes making use of forex obtained from the parallel market. Hence, the exchange rate in the
parallel market has also its own impact on the prices of imported goods.

2.2 Government continues to encourage diaspora Ethiopians to use the official channel
instead of the parallel market

Ethiopia receives an estimated USD 5-6 billion in remittance largely from its diaspora, the single
most important category of foreign exchange for Ethiopia covering 35 percent of imports.
However, as around half of the remittance is coming through the parallel market6, the
Government of Ethiopia is encouraging Ethiopian in the diaspora to transfer remittances
through legal channel to curb down the impending forex crunch. This measure is likely to have
played a role in slowing down the rate of depreciation of Birr against USD in the parallel market
observed since August 2021. The NBE is further advancing reforms to unify the official and
parallel rates and thereby re-directing remittance flows to the official channels.

3. The implications of the war in Ukraine

to food security in Ethiopia
The unfolding war in Ukraine has posed significant risk to the global economy that is already
struggling with inflation, supply-chain disruptions, and a bumpy recovery from the COVID-19
pandemic. Given the fact that the Black Sea area is an important route for food and non-food
commodities, the crisis has already triggered a dramatic rise in the prices of essential
commodities including wheat, fuel, fertilizer, steel, etc. and disrupted the supply chain. As an
importer of these crucial commodities, the price rise will obviously pose hefty pressure on the
balance of payments in Ethiopia.

There are multiple pathways through which this crisis will exacerbate the food insecurity of
rural and urban households in Ethiopia that are already struggling with inflation and
exacerbated by the impact of conflict and drought. The ballooning import bills for fuel, fertilizer,
wheat, steel, etc. in connection with the Ukraine war and a long spell of imported inflation due
to rise in imported goods prices are ever-growing threats to the GoE’s efforts to bring inflation
under control.
3.1 Wheat
Immediately after the war outbreak in Ukraine, prices of wheat reacted swiftly and spiked by 59
percent and hit the highest level since 2008 within two weeks (between February 21 and March
7)7. Although the prices trended downwards since then, the average price of wheat on March
17 was still 59 percent above a year earlier value. To make things worse, Ukraine8 has
suspended commercial shipping after the invasion and Russia is considering to temporarily ban
exports until June 30, 2022.9.

6
https://www.theigc.org/blog/pass-through-shocks-and-income-the-impact-of-covid-19-on-remittances-in-
ethiopia/
7
https://tradingeconomics.com/commodity/wheat
8
https://www.reuters.com/world/europe/russia-halts-vessel-movement-azov-sea-black-sea-open-2022-02-24/
9
https://www.cityam.com/wheat-prices-spike-as-russia-threatens-to-suspend-exports/

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 Monthly Market Watch | Ethiopia CO | March 2022 Page 8 of 18

Figure 6: Price trends of wheat (USD/bushel) in the international market

Source: Tradingeconomics

i. Wheat purchase from Black Sea area

Despite the fact that Ethiopia is the top producer of wheat in Sub-Sahara Africa, it still imports
large volumes of the same. About 25 percent of the wheat that is needed to fill domestic
demand is met through imports.10. Ethiopia’s grain imports are almost exclusively limited to
wheat, which is imported through humanitarian/development aid and commercial imports.
Ethiopia relies mostly on local cereal production to assure the consumption of its inhabitants
except that of wheat. Figure 7-Ukraine represents a key source for Ethiopia’s import of wheat.
Out of the total of 650,000 MT of wheat imported by WFP for the Government of Ethiopia relief
operations and wheat subsidy programme in 2021, 320,000 MT (49 percent) was imported from
Ukraine while the remaining 80,000 MT (12 percent) originated from Russia. Out of the total of
313,164 MT of wheat imported by WFP in the year for its relief operations in Ethiopia, 191,377
MT (61 percent) originated from Ukraine. These statistics do not include the quantities imported
by other humanitarian agencies, traders (in the form of pasta, macaroni, wheat flour, etc.)
through formal and informal mechanisms. Ethiopia’s import of wheat from Ukraine was
standing at USD 112.5 Million in 2020, according to the United Nations COMTRADE database on
international trade.

Figure 7: Percent of wheat imported by WFP in 2021 by source countries (MT)

10
https://tradingeconomics.com/commodity/wheat
https://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName?fileName=Grain%20and%20Feed%20Annual
_Addis%20Ababa_Ethiopia_03-15-2021

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Monthly Market Watch | Ethiopia CO | March 2022 Page 9 of 18

5% 0%
10%

8%

53%

23%

Ukraine Romania Russia USA Bulgaria Other

Source: WFP records

ii. GoE measures in place to mitigate the impacts of wheat price hike
The GoE has embarked on an effort to fully substitute wheat imports through the expansion of
summer wheat production in the country. The Programme intends to enhance the production
of wheat through the provision of irrigation schemes, better input supply, and mechanized
farming in the lowland and central parts of the country. According to the Ministry of
Agriculture, Ethiopia is undertaking the cultivation of summer wheat on over 400,000 hectares
of land across the country. In the current dry season, some 1.6 million MT of wheat is expected
to be harvested from the land covered by the Programme.

In a bid to ease the impacts of supply shortages and impact on food prices of basic food items,
the GoE has lifted local taxes on key basic food commodities including wheat.11 At the same
time, the export ban of major food grains imposed earlier through several government circulars
and directives will continue to be implemented.

Sheger Bakery and Flour Factory, a plant established through a public-private partnership of
MIDROC Investment Group and Addis Ababa City Administration in mid-2020, announced the
resumption of service after it suspended operation in the past couple of months due to the
escalation of wheat prices in the international market. The issue was resolved after the City
administration availed a total of 812-million-birr subsidy budget for wheat purchase. The plant
provides about one million loaves of bread per day at affordable prices to help low-income
community of the city and its environs access food.

11The tax waiver covers wheat, edible oil, sugar, rice, pasta, and eggs and excise duties and value-added tax originally imposed on
imported or locally produced edible oil, sugar, pasta, macaroni and rice. In addition, imported wheat is now only subject to duty tax
exemption.

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iii. Possible impacts of the surging wheat price

The crisis will pose challenges for the humanitarian assistance in Ethiopia. In addition to
inflation, wheat prices in the local markets will also create a strain on limited foreign exchange
reserves being experienced in the country. The impact of international price transmission is
expected to be severe in Somali region where a large segment of population is heavily
dependent on the informal import of significant wheat products (wheat flour, pasta, macaroni,
etc.) for their consumption. However, the produce from summer wheat programme and the
procurement of WFP wheat through the Global Commodity Management Facility (GCMF)12
arrangement will play a significant role in cushioning the price shock and meeting the
impending gaps in Ethiopia in the short to medium run.

3.2 Vegetable Oil

The prices of all types of vegetable oils have hit all time high in February even before the
outbreak of the war in Ukraine. The continued strong price rise of palm oil is due the sustained
global import demand that coincided with reduced export availabilities from Indonesia while
soybean oil values continued to rise due to the drought in Argentina and Brazil13. The crisis in
Black Sea is contributor to the surge of the price of sunflower oil globally. Ukraine and Russia
are responsible for 46 percent and 23 percent of sunflower-seed and sunflower oil production,
respectively.14

Figure 8: Price trends of palm oil (USD/ton) at the international market

i) Domestic vegetable oil production

As discussed in section 1 (inflation), consumers in Ethiopia are already feeling the pinch as the
retail prices of all types of edible oils spiked extraordinarily in February and March. The five
large scale edible oil plants and hundreds of small-scale edible oil processing plants in Ethiopia

12 WFP has already 140, 000 MT of wheat in Ethiopia procured through GCMF arrangement
13
https://www.fao.org/worldfoodsituation/foodpricesindex/en
14
https://oec.world/en/visualize/tree_map/hs92/export/show/all/3151211/2019/

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Monthly Market Watch | Ethiopia CO | March 2022 Page 11 of 18

are struggling at one-third of their capacity due to the scarcity of inputs (particularly, oilseeds
and crude oil) and the intermittence of electricity power15. Although these plants have an
aggregate capacity to meet the domestic demand and erected as a showcase for import
substitution, the country continues to depend on importing crude and processed oils which my
result in consumers heavily shouldering the burden of imported inflation.

ii) GoE measures in place to mitigate the impacts of vegetable oil price hikes
In a bid to increase the domestic production of edible oil, the National Bank of Ethiopia (NBE)
has recently included inputs for manufacturing industry of edible oil as part of first priority for
the allocation of foreign currency at banks.16

The GoE has dropped tax and tariffs on all imported edible oil products, forgoing at least 23.7-
billion-birr worth of revenue, according to the Minister of Finance. After the price of edible oil
went out of the roof in February and March, the regional governments have issued a statement
on warning traders to refrain from hoarding and unreasonable increases in prices. They have
also unleashed crackdown on hoarders and claimed the confiscation of millions of liters of
edible oil.

The GoE is planning to import 150 million liter of edible oil in the coming three months as part
of the efforts to stabilize the market.

3.3 Fuel
Comprising 12 percent of global oil supplies, Russia is the second biggest exporter of oil next to
Saudi Arabia. At the same time, supplying around 17 percent of global natural gas, Russia is the
leading producer globally. The war in Ukraine has triggered an immediate spike in the prices of
crude oil to a 14-year high of USD 140 a barrel as of March 7th. Prices have slightly come down
since then.
Figure 9: Price trends of fuel (USD/barrel)

i) Government to lift fuel subsidy

15
https://addisfortune.news/edible-oil-oily-prices-no-respite-for-consumers/
16
transparency in foreign currency allocation and foreign exchange management directives No. FXD/77/2021
https://nbebank.com/wp-content/uploads/pdf/directives/forex/fxd-77-2021.pdf

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The GoE has been subsidizing the fuel sector in an effort to ease the effect of fuel prices on
inflation. This has made fuel prices in Ethiopia the third cheapest in Sub-Saharan Africa next to
only oil producing countries of Angola and Nigeria17. Recently, the Council of Ministers has
approved a new resolution that will introduce price discrimination in the fuel subsidy in the
coming six months. Accordingly, when the resolution comes to implementation, the fuel
subsidy will be lifted on all vehicles apart from vehicles that provide public services, including
buses, taxis, and similar service providers18.

ii) The rise in fuel price to exacerbate inflation further

In 2020, fuel and related products constituted around 12 percent of Ethiopia’s total import
value, according to the United Nations COMTRADE database on international trade 19. The price
of fuel has more than doubled since then which shreds further the scarce foreign currency
reserves of the country. As the GoE is moving away from fuel subsidy, a surge in pumping
prices further escalates the cost of living, both through food prices and supply chain-related
fuel costs.

With fuel and electricity accounting for 10 percent of the national CPI, an increase in the fuel
price can easily translate to a direct rise on the headline inflation. As fuel is pivotal in every
sector of the economy, it could also lead to second-order inflationary effects on food and non-
food costs as producers and traders transfer their fuel costs to consumers. For example, the
transport sector, which constitutes around 2.8 percent of the national CPI weight, will be
affected by the rise in the price of fuel and that will affect the spending of users of transport
service. Production and distribution of food also has costs that are intrinsically tied to the fuel
price which leaves them with no alternative but to pass on at least some of the cost increases to
consumers.

3.4 Fertilizer
Around 14 percent of the value of global fertilizer exports — about 13 percent of nitrogenous
fertilizers, 17 percent of potassic fertilizers, and 15 percent of compound fertilizers — are
sourced from Russia.20 Belarus provides about 21 percent of global supplies of potash.21 The
disruption of the supply from these critical sources will certainly drive the prices of fertilizer
upwards in the global market. For example, prices for urea fertilizer have jumped 32 percent
since the invasion began on February 24, and diammonium phosphate are up by 13 percent.
Even before war started, fertilizer prices were already high because of supply chain problems
and higher natural gas prices, which is a major input for manufacturing ammonia fertilizers.

i) Import of fertilizer
Despite the fact that Ethiopia is not dependent on Russia and Belarus for fertilizer import22, the
disruption in the global market and its effects will be transmitted through price increase and
will likely affect the purchasing power of individual farmers. In 2020, Ethiopia imported over
USD 505 million worth of fertilizer23 and the import bill has rose to USD 688 million in 202124.

17
https://www.globalpetrolprices.com/gasoline_prices/
18
https://www.thereporterethiopia.com/article/government-introduce-price-discrimination-oil-sector
19
https://tradingeconomics.com/ethiopia/imports-by-category
20
FAOSTAT
21
FAOSTAT
22
Ethiopia imports most of the fertilizer from Morocco-based OCP Group and smaller proportions from UAE, Saudi,
and Egypt,
23
https://tradingeconomics.com/ethiopia/imports/fertilizers
24
https://addisfortune.news/skyrocketing-fertiliser-costs-petrify-farmers-threaten-productivity/

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ii) The effect of the price rise in fertilizer on farmers and food production
The farmers in Ethiopia are already feeling the pain as the retail price is reported to have nearly
tripled to that of the price levels last year25. Pronounced price increase of such a magnitude will
lead to lower affordability of fertilizer for poor subsistence farmers and ultimately lower use
levels. This would obviously lead to lower food production in the upcoming meher season
which is set to begin in the coming months. In connection with higher production cost and
lower production, food prices will rise further at a time when food insecurity is at a record high
due to the combined effects of the conflict, drought, and Covid-19. The effect of the war in
Ukraine will further fuel the already high inflation and consumers will have to bear the brunt of
imported inflation at the end.

3.5 Iron and Steel

The war in eastern Europe has disrupted steel exports from Russia and Ukraine, which
accounts for around 10 percent of the global trade. The conflict has resulted in major
disruptions to logistics routes required for steel and iron ore transport.

i) The role of construction sector in employment generation

The construction industry in Ethiopia has been experiencing a major boom in the past two
decades. According to the report released by National Bank of Ethiopia, construction industry
registered 6.6 percent expansion with 72.2 percent share in industrial output in the 2020/21
Fiscal year26. Using these data, it can be seen that construction accounted for 21.1 percent of
Ethiopia’s total GDP during the year. The construction has been creating massive full-time and
part-time employment opportunities to millions of youths in Ethiopia. The employment
opportunity created by the sector has attracted millions of skilled and non-skilled labourers
migrating from rural to urban areas in search of job. Most often, youth coming from rural areas
engage in unskilled jobs like digging, cleaning sites, carrying raw materials, mixing-up concretes,
etc. and learn on site new skills like plastering, carpentry, masonry, welding, etc. The
construction materials sub-sector also offers wage employment opportunities including
concrete manufacturing, brick manufacturing, metal and wood related products. A lot of wage
labour opportunities are also provided at outlets selling construction inputs such as cement,
steel, sand, gravel, etc. Rural-urban migrant workers usually returns to their homes and use the
income they generated to buy agricultural inputs such as: land, fertilizer, seed, ox, pesticide, etc.

ii) The possible impacts of the war on the construction sector and employment
opportunities
According to the United Nations COMTRADE database on international trade, Ethiopia has
spent 705.02 Million USD to import Iron and steel and USD 477.36 million articles of iron or
steel during 2020. Out of the total import, 17 percent (USD 121 million) was imported from
Ukraine. The disruption of the supply route and the concomitant escalating price of
construction inputs in the international market will obviously drive the prices in the local
market and discourage the construction sector as contractors cannot operate on losses. The
construction sector in Ethiopia has already slowed down due to the skyrocketed price of rebar
steel in the market. For instance, 10 mm rebar steel that was being sold at the price of 83
birr/kg in the first week of February in Addis Ababa market has spiked by 48 percent to 123 Birr

25
https://addisfortune.news/skyrocketing-fertiliser-costs-petrify-farmers-threaten-productivity/
26
https://nbebank.com/wp-content/uploads/pdf/annualbulletin/Annual%20Report%202020-2021/2020-
21%20Annual%20Report.pdf

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Monthly Market Watch | Ethiopia CO | March 2022 Page 14 of 18

Kg on the third week of March27. Under such a circumstance, contractors will ultimately be
compelled to downsize their workforce as they will be unable to pay salaries. This will
jeopardize the food security of many youths eking their living out of the construction sector.

4. Market dynamics in Conflict-affected

areas of Afar, Amhara, and Tigray
Table 1 compares the prices of key food commodities in conflict-affected areas of Tigray
(Mekelle, Mehoni, Shire, and Alamata), Amhara (Sekota, and Debark), and Afar (Chifra) to that of
Dessie market. The Dessie market located half-way between the main Addis Abeba-Mekelle
Road and that has been affected directly by the crisis, has been selected as a reference because
it is a source market for markets in Eastern Amhara, Afar, and before the crisis in the Tigray
region. Prices in conflict-affected areas are higher by 20 percent (when compared to that of
Dessie) and are marked in red icons, between -20 to 20 percent relative to the prices in Dessie
are marked in yellow icons, and below -20 percent of Dessie prices are marked in green icons

In Chifra market in Afar, the prices of maize and sorghum were higher when compared with
Dessie (reference market) by 70 and 60 percent. On the other hand, the prices of rice and
edible oil in Chifra market are standing at elevated levels at 80 and 45 percent higher than the
corresponding prices in the reference market (Dessie).

The market in Sekota (a town that has hosted thousands of IDPs) in Amhara exhibited
substantially higher prices of sorghum (39 percent), rice (42 percent), tomato (27 percent) and
banana (26 percent) as compared to the prices in Dessie. The daily wage rate of unskilled
labour in Sekota is 33 percent lower than the Dessie wage market, possibly because of the
abundant supply of labour from the IDPs settled in the area accompanied with limited demand
in the market.

When compared to the price levels in Dessie, the prices of maize, sorghum, and wheat grain are
51 percent, 39 percent, and 21 percent higher in Mekelle in Tigray. The prices of imported items
such as rice and edible oil are being sold at prices 166 and 141 percent higher than their
corresponding values in Dessie. Consumers in Mekelle have to spend more than double of the
amount of cash to buy fava beans and onions when compared with Dessie. Traders in Mehoni
and Alamata also sell these items at far higher prices as compared to that of Dessie, putting
hefty pressure on the net-buyer households that are already constrained by lack of cash and
livelihood options. The sky rocketed price of key staples in Tigray markets is attributable to the
below average production in the region in the meher harvest season compounded by
disruption of normal trade routes that used to connect Tigray to surplus producing areas of
Ethiopia, the non-functioning of transportation service due to the prohibitive fuel prices, fuel
scarcity in Tigray, and suspension of humanitarian supply through Semera-Abaala-Mekelle
route due to the ongoing conflict in the area.

27
https://con.2merkato.com/prices/material/2/47

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Monthly Market Watch | Ethiopia CO | March 2022 Page 15 of 18

Table 1: Prices of key food commodities in conflict affected markets in Afar, Amhara, and
Tigray as compared to Dessie market

Dessie Sekota Debark Mekelle Mehoni Shire Alamata Chifra

Birr Birr Birr Birr Birr Birr Birr
(Unit (Unit (Unit (Unit (Unit (Unit (Unit
Commodity Birr Price) % Dessie Price) % Dessie Price) % Dessie Price) % Dessie Price) % Dessie Price) % Dessie Price) % Dessie
Maize white (Kg) 23 25 6% 23 -1% 36 51% 34 45% 27.025 15% 35.4 51% 40 70%
Wheat white (Kg) 30 32 5% 26 -13% 36 21% 27.4 -8% 32.475 9% 27.6 -8% 24 -20%
Sorghum white (Kg) 25 35 39% 24 -2% 35 39% 32.1 28% 23.35 -7% 32.6 30% 40 60%
Teff Mixed (Kg) 42 45 7% 43 3% 47 12% 45.8 10% 41.45 -1% 45.7 10%
Wheat Flour (Kg) 48 55 14% 47 -1% 51 6% 50.3 5% 40.15 -16% 52.2 9%
Rice (Kg) 36 51 42% 50 39% 96 166% 115 219% 75.4 109% 113 213% 65 80%
Edible Oil (Liter) 138 146 6% 102 -26% 332 141% 362 163% 281.6 104% 374 171% 200 45%
Sugar(kg) 51 58 13% 60 16% 60 17%
Fava beans (Kg) 37 34 -7% 38 3% 78 113% 112 205% 72.05 96% 111 202%
Onion (Kg) 27 33 19% 32 17% 66 139% 100 265% 60.6 121% 100 265% 30 9%
Tomato (Kg) 30 39 27% 30 0% 17 -44% 22 -27% 18.5 -39% 21 -30% 25 -17%
Banana (kg) 45 57 26% 50 11% 62 37% 71 57% 71 57% 84 86%
Unskilled labour daily
wage 200 135 -33% 165 -18% 169 -16% 149 -26% 150 -25% 146 -27% 250 25%
Goat (head) 6,736 2,305 -66% 2,928 -57% 2,230 -67% 2140 -68% 1892.5 -72% 2120 -69% 1600 -76%
Sheep (head) 4,846 2,090 -57% 2,830 -42% 2,300 -53% 2280 -53% 1627.5 -66% 2310 -52% 1650 -66%

Source: WFP monitoring survey

5. Terms of Trade (ToT): Shoat to

Maize and Shoat to wheat flour in
Somali region markets
Pastoralists in Somali region usually sell their livestock to acquire cash to purchase staple foods
at the market. Livestock price, which varies greatly between markets and season, is an
important determinant of incomes of pastoralists. Term of trade (ToTs) are computed for shoat
(Sheep and Goat) and commonly consumed food items such as maize and wheat flour to gauge
the trends of the purchasing power of pastoralist households in Somali region that is hardest
hit with recurrent droughts.

5.1 Shoat to maize:

Figure 10 - ToT between shoat (sheep and goat) and maize, continued deteriorating for
successive months since July 2021, due to the severe drought in the region. The poor
performance of Deyr 2021 rain succeeded by the extended Jilal dry season limited the
availability of pasture in Somali region. Livestock body condition is reported to continue
deteriorating, and hundreds of thousands of livestock deaths are already reported due to lack
of animal feed and water, with additional hundreds of thousands of livestock at risk if they
cannot get emergency feed, water, and vaccination. Shoats are fetching low prices due to the
continued deterioration of physical body condition in the absence of pastures. Pastoralists are
bringing their shoats in excessive numbers to the market, but traders engaged in shoat
business are no longer interested in animals that have poor body condition. An average-sized
male sheep/goat that could fetch 118 kg of maize in February 2021 in Kebridehar market now
brings only 62 kg of maize in February 2022. In Chereti market the ToT has deteriorated from

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Monthly Market Watch | Ethiopia CO | March 2022 Page 16 of 18

75 Kg to 47Kg of maize during the same period. This will continue to deplete the purchasing
power of pastoralists in Somali region.

Figure 10: Terms of trade (ToT) in Somali markets: Shoat to maize

2.1
1.9
1.7
1.5
1.3
1.1
0.9
0.7
0.5
0.3

Dolo Chereti Degehabour Gode Jijiga Kebridehar Filtu Siti

Source: WFP Market Price Monitoring Surveys

5.2 Shoat to wheat flour:

Figure 11: the ToT of shoat to wheat flour, which indicates how much imported wheat flour a
pastoralist can buy after selling an average sized goat/sheep, plunged in July and early August
as the Birr lost value against US dollar in the parallel market and the body conditions of the
shoats deteriorated. An average-sized male sheep/goat that could fetch 79 kg of wheat flour in
February 2021 in Sitti market now brings only 54 kg of wheat flour in February 2022. In Filtu
market the ToT has deteriorated from 45 Kg to 27 Kg of wheat flour during the same period.
Under such circumstances, poor households are forced to buy significantly less quantities of
food compared to the quantities they purchased one year ago, or they are forced to switch to
less preferred and cheaper substitute food items to cope with the price hikes.
Figure 11: Terms of trade (ToT) in Somali markets: Shoat to wheat flour
1.6

1.4

1.2

1.0

0.8

0.6

0.4

0.2

Dolo Chereti Degehabour Gode Jijiga Kebridehar Filtu Siti

Source: WFP Market Price Monitoring Surveys

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Monthly Market Watch | Ethiopia CO | March 2022 Page 17 of 18

6. Markets & Food Security

Outlook
▪ The broad supply of money to finance the budget deficit, the production loss
and trade disruption due to the ongoing conflict in Northern Ethiopia, the
anticipated spike in the pumping price of fuel, and the upward tendency in the
prices of food and non-food commodities (including fertilizer, steel and iron,
vegetable oil, etc) in the international market are expected to drive the inflation
even to higher levels.

▪ The impact of the Ukraine war is likely to pose a daunting challenge to the
Ethiopian economy through increased bill of fuel, fertilizer, wheat, vegetable oil,
and steel and iron. Given that these are strategic commodities in the economy,
they are inelastic and as a result shred further the scarce foreign currency
reserves of the country. As the traders pass the increased cost to the
consumers, poor households will be disproportionately affected, and the food
security status of more households will be jeopardized in the coming months.

▪ Pronounced price increase of fertilizer will lead to lower affordability of fertilizer

for poor subsistence farmers and ultimately lower use levels. This may lead to
lower food production in the upcoming meher season which is set to begin in
the coming months. In connection with higher production cost and lower
production, food prices may rise further at a time when food insecurity is at a
record high due to the combined effects of the conflict, drought, and Covid-19.

▪ The skyrocketed construction inputs prices are expected to dampen the

employment opportunities in the sector. This will jeopardize the food security of
many youths who eke their living out of the construction sector.

▪ The severe drought condition in Somali region is expected to continue to

distress the lives and livelihood of pastoralist and agro-pastoralist communities
in Somali and Oromia regions. Underpinned by the devaluation of Birr against
US dollar in the parallel market, the impact of the drought will continue to pose
serious challenge on the availability and accessibility of staple foods in Somali
region, which will further deteriorate the food security of the population.

▪ A very high concentration of internally displaced persons in the conflict-affected

areas in northern Ethiopia, amidst the production loss due to the conflict, is
likely to increase food demand and continues to add pressure on prices.

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For more information about this bulletin, contact VAM Unit:

Tsegazeab.bezabih@wfp.org , Alemtsehai.alemu@wfp.org or Esther Kabaire@wfp.org
DIVISION NAME: VAM Food Security Analysis
World Food Programme, Ethiopa
Kirkos Sub City, Kebele 17/18, River Side Hotel PLC Addis Ababa, Ethiopia |
T +251 115 172 121 F +251 115 514 433

WFP VAM | Food Security Analysis