Cheap, duty free sugar which had been held for investigation for mercury was released into the market for consumption, and coupled with increased competition from cheap sugar imports in the market, helped reduce the prices of sugar in February.
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Three reasons sugar could repeat last year’s action.
CANE for those who do not trade futures.
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After trading to a high at 14.24 cents per pound in October 2018, the price of sugar has been dissolving like a cube in a hot cup of coffee. The price of the sweet commodity hit its lowest level of 2019 and since last year at this time last week when it traded to a low at 10.86 cents per pound. In September 2018, the price found a bottom at 9.83 cents, the lowest level in a decade. The decline below the 10 cents level triggered a swift recovery that took it to over 14 cents.
Sugar can be a wild commodity when it comes to price volatility. Since the early 1970s, the price has traded as low at 2.29 cents and as high as 66 cents. The most recent significant low came last September at just under 10 cents. The high came in 2011 when the sweet commodity peaked at 36.08 cents per pound.
Brazil is the leading free-market producer of sugarcane in the world. While lots of Brazilian sugar is absorbed by internal ethanol production, the South American nation is the leading exporter of sugar.
Since last October the price has been making lower highs and lower lows, and it may be on its way for a test of levels below 10 cents per pound. The most direct route for investment or trading positions in sugar is via the futures and futures options that trade on the Intercontinental Exchange. The Teucrium Sugar ETF (NYSEARCA:CANE) product provides an alternative for those who do not venture into the futures arena but wish to take exposure to the sweet and volatile commodity.
New lows for 2019 for sugar
Active month October sugar futures on the Intercontinental Exchange reached the high for 2019 at 13.96 cents in late February. Since then, the price of sugar has made lower highs and lower lows.
As the daily chart highlights, the price of sugar futures has continued to decline throughout most of 2019, reaching the most recent low at 10.86 cents per pound on September 5. Open interest, the total number of open long and short positions in the sugar futures market has risen steadily since early July. The metric moved from 838,771 on July 1 to 1,079,648 contracts at the end of last week. The open interest metric had risen to a new record high during the first week of September. Both price momentum and relative strength indicators have declined into oversold territory. Daily historical volatility at 14.02% has declined as the descent of the price of the sweet commodity has been slow and steady.
The sweet commodity heads for the 10 cents level
The price of sugar is heading for 10 cents per pound once again. Last year, the price fell to a low at 9.83 cents in September, which was the first time that sugar futures fell below the 10 cents level in a decade.
As the monthly chart shows, sugar approached the 10 cents per pound level in 2015 but stopped short at 10.13 cents. Before last year’s low, the last time the price was below 10 cents was back in 2008 when it hit a low at 9.44 cents. In 2007, the sugar futures market declined to 8.36 cents.
Sugar is now heading for 10 cents at the same time of the year it did in 2018.
Memories of September 2018
In September 2018, the nearby sugar futures contract on the Intercontinental Exchange worked its way to 9.83 cents during the week of September 24.
The weekly chart illustrates the decline in 2018 and an abrupt turnaround that caused a rally of 44.9% when the soft commodity reached a peak at 14.24 cents during the week of October 22. The one-month recovery came following the rise in open interest to the previous record level at over 1.058 million contracts. On the weekly chart, sugar has declined into oversold territory when it comes to both price momentum and relative strength metrics. Weekly volatility is below 17%. As the price was falling in 2018, the measure of price variance fell to below 20%. The rally from September through October last year lifted the volatility measure to over 50%.
Last June through September was a bearish time for the sugar market, and in 2019, the same pattern has developed. There are lots of similarities between the price action in the soft commodity this year compared to last.
Three reasons sugar could repeat last year’s action
We are now at the time of the year that markets the first anniversary of the decline of sugar to below the 10 cents per pound level. Three factors are making the fall of 2019 look a lot like the same time in 2018. Technically, the price of sugar is in oversold territory on the weekly, quarterly, and many of the long-term charts. The oversold condition could be a sign that speculative shorts in sugar are pushing the price lower.
Another reason that sugar could bounce from around the 10 cents level is that it is at or close to the bottom end of its pricing cycle. Over the past ten years, sugar futures have traded in a range from last year’s low at 9.83 cents to a high at 36.08 cents per pound. At under 11 cents, sugar is a lot closer to the lows than the highs with demand expanding each day. Population growth around the world increases the demand for sugar, even though more health-conscious diets have decreased the consumption of the sweet commodity. Each year supplies depend on the weather in critical growing regions. When it comes to sugar, in South America, sugarcane is the primary ingredient in ethanol. Demand for the biofuel is a significant factor when it comes to the price path of sugar. Abundant supplies and inventories over past months and years do not guaranty the future availability of sugarcane. Therefore, the price is always subject to sharp moves during weather events.
Finally, since the world’s leading producer and exporter of sugarcane is Brazil, the soft commodity is sensitive to the exchange rate between the Brazilian real and US dollar. Sugar futures use the US currency as a benchmark, and local production costs are in Brazilian currency terms. Therefore, a fall in the real tends to weigh on the price of sugar futures while a rise in the currency is often a supportive factor.
The monthly chart illustrates that in 2011 when sugar reached over 36 cents per pound, the Brazilian real versus US dollar peaked at over $0.65. Both sugar and the Brazilian currency are at either side of one-third the value as eight years ago with the real trading at $0.24465 on September 9 and sugar futures at just below 11 cents per pound.
Last year from September through October the real rallied from $0.23625 to $0.28035 when sugar recovered from 9.83 cents to 14.24 per pound. The Brazilian currency moved higher as the nation elected a business-friendly government under President Jair Bolsonaro. The recent decline in the real came on the back of fires in the Amazon and economic turmoil in neighboring Argentina. With the real at the bottom end of its trading range, the downside in the currency could be limited with significant upside potential. A recovery in the real would likely cause the price of sugar futures to move higher.
CANE for those who do not trade futures
The most direct route for investment in sugar is via the futures and futures options that trade on the Intercontinental Exchange. The Teucrium Sugar ETF product provides an alternative that tends to outperform the price of sugar during price declines and underperforms during rallies. CANE holds a portfolio of three of the most liquid sugar futures contracts. The nearby futures contract often exhibits the highest degree of price variance when it comes to short-term moves, which creates the underperformance on the upside and a better result on a percentage basis when the price declines. The most recent top holdings of CANE include:
Source: Yahoo Finance
CANE has net assets of $8.75 million and trades an average of 21,879 shares each day. The ETF charges an expense ratio of 1.0%. The last significant rally in the sugar market came in late July when the price rose from 11.39 to 12.30 cents from July 23 through July 30. The price appreciated by 7.99% over the period. The price then fell from the July 30 high to its most recent low at 10.86 cents on September 5, a drop of 11.7%.
Over the same periods, the price of CANE rose from $6.62 to $6.99 per share and then fell to a low at $6.33 per share. The rise of 5.59% underperformed the futures on the upside, and the decline of 9.44% outperformed on the downside.
If September through October is going to be anything like 2018 in the sugar futures market, a long position in the sugar market or the CANE ETF could sweeten your portfolio over the coming weeks.
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Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The author always has positions in commodities markets in futures, options, ETF/ETN products, and commodity equities. These long and short positions tend to change on an intraday basis.
As sugar prices have also been falling in domestic market during one decade and about 80% of sugar already heaped up at the mills, the sugarcane growers are in difficulties, according to the growers from Mandalay and Sagaing Regions and northern Shan State.
“Local sugarcane price fall plays a vital role in the difficulties. The price of sugar was Ks 50,000 per ton in 2015-16. Now, the current price is Ks 38,000 per ton. The sugarcane mill has to pay Ks 1,000 per ton of sugarcane when the price was set to a rise. The domestic sugar market collapsed because foreign imported sugarcane influenced in the market. Moreover, sugar smuggling from China has also affected domestic manufactures.
As the border gates already closed, about 60,000 tons of sugars were heaped up in Muse Township, northern Shan State. The 18 domestic sugar mills are now producing about 500,000 tons of sugar per year. The local consumption of sugar is about 400,000 tons yearly. So, about 100,000 tons exceeded. We are going to seek the new market for exceeded sugar.
Now, the entrepreneurs from the abroad import the sugar and they are illegally selling the sugar in the local market. That’s why the market was collapsed. The local sugarcane factories didn’t sell their sugar. In doing so, the sugarcane growers were in difficulties because the mills didn’t pay good price,” said Cho Tue from Katha Township, Sagaing Region.
Although Katha Township produces about 1.8 million tons of sugar during this year sugarcane harvesting period, the factory bought about 1.3 million tons of sugar. So, the growers may sell their remaining sugar about 500,000 tons to the market in Mandalay after distilling. However, the price of distilled sugar already declined.
In Myanmar, there are over 400,000 acres of sugarcane and the production rate is over 10 million tons.
Currently, the sugars are being exported to the Chinese market. The sugarcane cultivation period started December to April.
Government of Uganda has lifted a ban on the export of raw sugarcane to Kenya for a period of three months effective next week.
Announcing the development on Monday evening, President Yoweri Museveni said it aims at allowing Ugandan farmers to sell the surplus sugarcane. “Mature sugarcane that doesn’t have ready buyers from local millers, should be exported,” he said. The decision was reached at during a meeting chaired by the President at State House, Entebbe. The meeting on Monday evening brought together sugar millers and farmers from Busoga Sub-Region.
Ugandan farmers, for the last few months, have grown too much sugarcane resulting in a surplus supply on the local market. The decision to lift the ban will see Uganda export raw sugarcane to allow Kenya-based factories that are willing, to buy sugarcane from Uganda. The meeting emphasized and agreed that only mature sugarcane should be exported adding that an Agricultural Officer should determine sugarcane maturity and its fitness for export.
The meeting also resolved that if a farmer had credit with a miller, the miller is obliged to buy all the mature sugarcane within the agreed contract period. If not, the miller should compensate the farmer for the loss. President Museveni directed that all bond warehouses should be banned with immediate effect in order to harmonize the price of sugar and root for the expansion and growth of the sugar industry.
The President also asked sugarcane millers and farmers to work together adding that the two players need each other in order to ensure the survival of the sugar industry. He, however, cautioned sugarcane farmers about the low returns from sugarcane production saying that the venture will not get them out of poverty mostly those who have small pieces of land. He, therefore, called on them to diversify their production ventures and concentrate more on crops like coffee, poultry, piggery and fish farming, among other enterprises that can yield good income for their homesteads.
Trade, Industry and Cooperatives Minister, Hon, Amelia Kyambadde, said her Ministry will allow Uganda sugarcane farmers to export excess sugarcane to Kenya for only 3 months. She revealed that her Ministry is doing all that is possible to secure licenses for farmers to sell their raw sugarcane to avert incurring losses. She strongly advised sugarcane farmers to form a consortium in transportation of their sugarcane to ensure realization of tangible benefits.
President Museveni and his counterpart, Uhuru Kenyatta of Kenya, met on the sidelines of the 8th TICAD Conference in Japan last month and discussed issues related to the sugar business in their neighbouring countries. They agreed to fast track the process of enabling traders in Uganda and Kenya to access each other’s markets with ease.
The Pakistan Economy Watch (PEW) on Wednesday said continued hike in the price of sugar in acceptable which amounts to the exploitation of masses reeling under inflation.
The sugar which was being sold at a price of Rs45 per Kg is now available at Rs80 which is condemnable, it said.
The price of sugar is being increased without justification, while the sugarcane growers are not benefitting from it, said Dr. Murtaza Mughal, President PEW.
The growers are facing exploitation by the sugar millers which is not being noticed, he added.
Dr. Murtaza Mughal said that the price of urea is set to increase by Rs200 per bag which will hit the agriculture sector and increase the cost of production.
He noted that the government has set a target of inflation at six percent but it jumped to double-digit in February and now it is at 11.63 percent while prices of many items have registered 30 to 40 percent increase.
Price of every necessity is increasing while the role of the government is confined just to issue daily rates and leaving the consumers at the mercy of shopkeepers.
This is despite the fact that except for a few limited items, the bulk of the food and necessary edible supplies are domestically produced but not properly managed.
The producers are allowed to sell their products in the market at any price they can derive as the administrative mechanism exists in books only.
Thailand’s military government initiated a ten-year sugar plan in 2015 that glowingly envisioned more than doubling sugarcane production and making Thailand the “bio-hub” of Southeast Asia. But in the Northeast where nearly half the country’s sugarcane is produced, growers both large and small are struggling to keep their heads above water as sugar prices have plummeted in the world market over the past three years.
PART VII: Thailand’s vision of a sugary future lets Isaan farmers struggle
Additional material by Teresa Montanero
When the rain arrived in mid-September, the sugarcane of Thawatchai Sriwiboon grew large and green. But as the harvest season closes this year, the farmer in Khon Kaen’s Nong Ruea district has lost any hope in making a profit.
“The price of sugarcane has been low for years, and I had to cut down my farm land from 80 to 40 rai,” Thawatchai says.
From 2015 to 2016, the price of sugarcane dropped from 850 baht per ton to 773 baht, causing many farmers to reduce the area of sugarcane growing.
Like many other farmers in the Northeast, Thawatchai switched from rice to sugarcane the late 1990s and made a good profit off his initial 30 rai of land. He even leased another 150 rai to expand his farm.
“In the first few years, I made 600,000 to 700,000 baht per year. Now I only make 300,000 baht. After deducting all the expenses, I don’t make much profit,” the 52-year-old farmer says.
Thawatchai’s farmland is not very far from a sugar mill in Khon Kaen province. Although there is little expense in delivering his sugarcane to the mill, the high costs of production kept him from making a profit.
He started cutting back on the land he leased for sugarcane cultivation every year.
Each planting season, he had to spend 100,000 baht for labor, 200,000 baht to pay back debt to the mill for fertilizers and other chemicals, and another 200,000 baht interest to the Bank of Agriculture and Agricultural Cooperatives (BAAC), not to mention other expenses like weed cutting and renting tractors. The current price of a ton of sugarcane has dropped even further, to around 650 baht.
The math just isn’t adding up for Thawatchai.
“After a year of work, me and my wife don’t have much money left. But we have no way out,” Thawatchai says, discouraged. “We have to deal with the fact that the price of sugarcane is going down.
Can’t live on sugarcane
Because of Isaan‘s dry climate, farmers plant their sugarcane in September or October and harvest in November or December of the following year after 12-14 months. The average input costs at a minimum are 7,000 to 8,000 baht per rai.
Somkit Srinakaew is a 50-year-old farmer from Nam Phong district in Khon Kaen province. His family’s been growing sugarcane since his father’s time on more than 50 rai of land (eight hectare).
“Sugarcane normally will produce a yield of ten tons per rai,” Somkit says. “But if the price remains the same as last season, sugarcane farmers will not be able to survive because they’ll lose money.”
The only thing that has been keeping Isaan’s sugarcane growers afloat is a price-sharing scheme devised by the government in 1984. Producers took a 70/30 percent split with the mills, and also received certain government subsidies.
Sugarcane growers receive a subsidy of 50 baht per ton from a fund supplied by a grower’s association and 60 baht per ton from the government.
Somkit’s family can expect to pay, at the low end, 7,000 baht for inputs per rai. With 50 rai, he’ll have to pay at least 350,000 baht. If his farm produces a yield of 500 tons, he’d make 680 a ton plus the 110 baht per ton in subsidies. At today’s prices, Somkit would make 395,000 baht–a mere 45,000 baht in profit, or almost 1,000 baht per rai. Without the subsidies, he’d be in the hole for 10,000 baht.
Even with the subsidies, Somkit’s family is unable to survive on sugarcane growing. He has needed to supplement income by opening up a chemical fertilizer and herbicides shop.
Somkit is considered as a second-generation sugarcane farmer. He seriously doubts if his son will be the third.
Big sugarcane growers are somewhat better off
Sugarcane farmers who work more than 200 rai (32 hectare) make up only thirteen percent of all growers in the Northeast. Some have very large farms like Chaiwat Kittiwaraphong, a 49-year-old resident of NamPhong district in Khon Kaen province who farms 1,200 rai in sugarcane.
“My family has been growing sugarcane for more than 30 years,” he tells The Isaan Record, sitting in the air-conditioned office of the Nam Phong Sugarcane Growers’ Association. “We have our own land as well as the land that we are leasing. The price for sugarcane started at 500-600 baht per ton. Later, the price went up to 1,000 baht, which is enough for farmers to live by.”
World sugar prices peaked in 1980 when sugar was selling at $1,010 USD (about 30,800 baht) per ton. It hit another high in 2011 when it stood $730 USD a ton, and hit another high point in 2016 of $530 USD. It is now at a very low $240 USD (about 7,300 baht) a ton.
Even in hard times like these, if Chaiwat had the same inputs and yield as Somkit and his 50 rai, he would have made 10.8 million baht with his 1,200 rai.
Chaiwat believes that most sugarcane farmers are at their breaking point.
“The price of sugarcane is not stable,” he says. “If I were one of those small-scale farmers, I would have quit. I have seen many farmers who’ve stopped. If the [sugar] price goes down even more, farmers will not be able to survive. Even now people are shifting from sugarcane to growing cassava.”
But Chaiwat says that he’s invested too much into sugar cane to stop now. “I have a machine that cannot be used with other crops. I have to keep fighting.”
The government’s Office of Cane and Sugar Board (OCSB) runs the world of sugar in Thailand. Its secretary-general, Worawan Chid-aroon, has the unenviable task of keeping sugar moving even when it’s become unprofitable.
In a news statement of 17 December 2018, Worawan Chid-aroon tried to clarify the situation on the agency’s website. She said the cost valuation on the production of one ton of sugarcane is 1,041 baht. This is partly due, she said, to the government’s policy that encourages farmers to switch growing off-season rice with sugarcane to increase productivity. But partly due to the policy’s success, the increased production of sugar has lowered the price of sugarcane in 2018/19 to only about 700 baht per ton.
Even with subsidies, she said, farmers “will receive 880-900 baht per ton,” that should be enough to “help mitigate the problems farmers are facing at a good, satisfactory level.”
“We acknowledge and understand that the price of sugarcane is lower than the input cost,” the secretary-general admits.
Thailand produced a record 134 million tons of sugarcane last year, but that good fortune “flooded the global market and caused the price to drop.” Her only hope for the present time is to note that the world price of sugar seems to be higher than first predicted.
Long-term vision rosier than short-term reality
In order to help sugarcane farmers in the short run, the government last year approved a support measure of 6.5 billion baht.
The amount is not small. It would provide producers with 563 baht (about $18 USD) for each of the 11,542,553 rai grown in sugarcane last year. But it might be seen as a subsidy in the eyes of the WTO and a populist handout domestically.
Under the ten-year plan, the buzz words are “Smart Farming” and “Bio Hub.” Smart Farming would “increase the efficiency of the production” by using “modern agriculture.” With Smart Farmers producing more and sweeter sugarcane, new technologies will “push forward the bio-economy” and make Thailand the “Bio Hub of ASEAN” by 2024.
In July 2018, the cabinet approved a 96-billion-baht bio-economy development plan with three pilot areas: the eastern special economic zone (with an estimated investment budget of 9.740 billion baht), the lower northern area (Nakhon Sawan and Kamphaeng Phet, with a budget of 51 billion baht), and the lower Isaan area (Khon Kaen, with a budget of 35.030 billion baht).
Sugarcane farmer groups call for higher prices
According to the Nam Phong Sugarcane Growers’ Association of Khon Kaen province 80 percent of the 8,000 current members complained about the sugarcane price being lower than the input cost. They demanded that the government issue a price guarantee policy for their produce.
“If the government decided to increase the price of sugar and the funding for the farmers, we would be doing fine,” suggests Winyo Wongsa, the secretary of the association.
But any attempt by the government to fix sugar prices or provide help might violate WTO rules.
Concerns about sugarcane’s environmental footprint
Santiparp Siriwattanaphaiboon, an environmental expert from Udon Thani Rajabhat University is concerned that the government’s policy of sugarcane expansion might backfire. In order to achieve a higher yield, farmers will need a larger area which might cause them to plow up paddy fields and forest area to grow sugarcane.
“In some areas in Isaan, 30–50 rai of paddy fields have been plowed, and forests were cut down. This caused degradation of the forest ecosystem. If biodiversity in the area is destroyed, food security within the community will also be affected,” Santiparp says.
Another academic researching the effects of sugarcane and sugar industry in Isaan, Sataporn Roengtam from the Faculty of Humanities and Social Sciences at Khon Kaen University, is also skeptical of the government’s sugarcane policy.
“I want the government to create a true participatory process between the [sugar] company and the people in the area. I want the government to re-evaluate the negative impacts that might occur,” Sataporn says.
Dreaming of a life after sugarcane
Thawatchai, like many other sugarcane farmers in the Northeast, started off growing rice on his 30 rai of land. When the price of rice dropped, sugarcane was an attractive alternative. He was one of the first in the village to make the transition.
He began on his own land and after a few years he was growing 150 rai of sugarcane mostly on rented land.
But it’s been a slow grind. He had made a profit and had a modest debt. But as the years went on, as the prices went up and down, his profits were more and more lost to debt payments and the rising costs of inputs.
One of his children works in Khon Kaen city. One works at the sugar mill. A third is in high school, still at home. The older two have no interest in farming. All they’d seen their entire lives was sugarcane fields. His youngest son, he’s not sure.
Thawatchai’s dream is to return to his original 30-rai plot of land, where he and his wife could have an integrated farm just to support the two of them.
Maybe he can do that in ten years, he says. Ten more years of trying to pay off debt from a livelihood where it often costs more to produce than to sell what he’s been harvesting.
Additional material by Teresa Montanero who majors in Anthropology at Georgetown University and studied about development and human rights issues in the Northeast in spring 2019.
Lawmakers have directed the government to ensure and ease supply of daily essentials in upcoming festive season.
During a meeting of the Industry, Commerce, Labour and Consumer Interest Committee of the Federal Parliament today, the lawmakers directed the government to address the grievances of the public with regard to crisis of daily essentials.
The lawmakers have drawn the attention of the related ministries like Ministry of Home Affairs, Ministry of Physical Infrastructure and Transport, Ministry of Agriculture and Livestock Development, Ministry of Industry, Commerce and Supplies, Ministry of Finance and their line agencies for regular supply of daily consumable goods, including foodstuffs, medicines, clothing, electronic appliances, dairy products and others.
The committee has directed the government to form strong and effective market monitoring mechanisms to stop black market activities and control inflation.
Lawmakers said that the government bodies should focus on regular supply of petroleum products and meat and meat products in the market.
While the committee has directed the government to establish fair price shops across the country, the government has already set up 73 such outlets across the country. Salt Trading Corporation is operating a total of 35 fair price shops, including three mobile outlets, while Food Management and Trade Company and Dairy Development Corporation are operating 23 and 15 fair price shops, respectively, within and outside the Valley.
The committee has also directed the government to fix the price of sugar and ensure sufficient vehicles and tickets for travellers during festivals like Dashain, Tihar and Chhath.
Already grappling with political instability, foreign exchange shortages, Ethiopia now has to worry about the rising price of food
“Any sugar?” says the young woman, leaning into a shop in the town of Merawi, 34kms away from Bahir Dar. The shopkeeper shook his head. “Come and check next week.”
Behind him, the shelves are filled with products such as eggs, sweats, tea, hair products, milk powder, candles, matches, cigarettes, bottled water, spaghetti, onion, but the shopkeeper, Zelalem Alebachew says sugar and cooking oil have been in short supply for a quite a while. He has some oil type like Niger seed oil but that is too expensive for many of his clients who came looking for vegetable oil, he added. Sugar and oil, two products that are provided to him by the state-organized union, disappear for days or weeks, he says. When it is available, the price of sugar is 22 birr per kg and he distributes to those registered and who have ID cards indicating they live in the area. But most residents of the town look for the underground market where they pay between 40 and 50 birr per kilo, he explained.
Merawi is not another town in another pervasive story of scarcity in Ethiopia. Located on the main highway between Addis Ababa and Bahir Dar and in the midst of rich farming territory, the town is reputed for exporting fuelwood, the alcoholic drink Areke, cattle, and milk to different parts of the country and even Sudan. However, these days it is going through a difficult economic situation, as it is the case for many urban centers and rural areas across the nation, attributed to low production and poor performance in sectors including sugar, large import bills of food, medicine, and fuel, accompanied by the security issues and massive displacement in different parts of the country.
Looking at recent trends in commodity prices, the prices of foods have been increasing in most parts of the country. The Central Statistical Agency (CSA) announced that headline inflation has reached a record high rate of 17.9pc in August. Shortages of certain key food items and retail price hikes have become a serious daily problem for millions of Ethiopians. “It has unfortunately become features of everyday life. Consumers are becoming incensed each passing day,” says a businessman in Bahir Dar.
Affordable food is a volatile issue in Ethiopia, where millions live in a precarious condition and economic discontent has triggered widespread anger and massive protests for about four years short before Abiy Ahmed became Prime Minister. The dangers are not lost on the Prime Minister who has promised to respond to stabilise increasing prices and to protect Ethiopians from the worst effects of double-digit inflation, which has been testing the country for the past decade. Momentarily, the government is working on securing supply of wheat and edible oil, which are in dire shortages, Abiy said in a recent press conference. The Prime Minister also said agriculture would experience a boost this year due to a good rainy season.
But for the time being, the cost of goods and services continue to rise, pushing more families deeper into poverty. Drastic increases in prices and low incomes have turned even onion into a priced item, its price going up to 30 birr a kg, which has provoked much grumbling. A joke that circulated on social media has it that these days onions cause tears when consumers pay to purchase them. Equally, the price of garlic surged by more than 50 percent in the past month, selling 150 birr a kilogram. Prices for lentils have also doubled, 80 birr a kg in the past few months. Teff, a prized cereal, rose to 3000 Br from 1500 Br. Chicken, beef and lamb prices have been creeping up, too.
The country has recorded an average annual average GDP growth of ten percent for the past decade. But state and private companies have been hit hard by the hard currency shortages. The shortage has also made it difficult for Ethiopia’s importers to buy medical drugs from abroad. A pharmacist in a drugstore of Debre Markos town says that there is a serious lack of basic medicines such as nasal puff, PTU tablet to treat an overactive thyroid gland, Ventolin to treat breathing problems. Occasional shortages have been the norm for the past decade, but this has been one of the worst in recent memory, the pharmacist told Ethiopia Observer. Consumers reportedly had to resort to the black market to secure much- needed medicines.
Dr. Beyene Tadesse, an economist and author of the book, The Impact of Policy Reform And Institutional Transformation on Agricultural Performance explains that there could be many reasons that can drive prices but the main one is communal violence and displacement in the country has disrupted farming activities and eliminated coping resources like livestock. He says the indications are further upward pressure on prices is expected over the next year. Even locally produced grains such as Teff have shown increase due to the surge in the cost of imported raw materials such as fertilizers, he says. The share of the population working in agriculture is also declining, more and more young people leaving the subsistence farming for other occupations in urban centers, which should be a concern for the country, the economist says. Dealing with the food shortages requires greater economic activity, finding ways to increase incomes, Beyene says. However importantly, the government has to improve security to reassure large farming enterprises that stopped production into resuming activities, he says.
The state-owned Amharic daily Addis Zemen has recently published an article saying that food supplies are plentiful but problems arose because some traders and merchants are hoarding food items in order to sell them later when market fluctuations would allow for a profit. The paper also points fingers on some unions that are given the responsibility by the government to distribute items for citizens for failing their mission. On September 9, Addis Zemen wrote that certain of the unions are engaged in fraudulent practices, such as selling the wheat flour procured by imports and provided by the state in another package at a different market instead of distributing to the people who were supposed to.
Strict control of such fraudulent activities might be necessary, but analysts say the government should not be complacent of considering clamping down on traders and merchants as the only solution, but rather it should work on increased domestic private sector, revising policy on imported goods, as well as promoting higher exports.
The government on Friday warned sugar industry that if the commodity’s price continues to show an increasing trend in the domestic market, options of putting a ban on exports maybe explored.
This message was conveyed to the sugar industry at a meeting of Sugar Advisory Board (SAB) presided over by Prime Minister’s Advisor on Commerce, Textile, Industries and Production and Investment, Abdul Razak Dawood. Secretary Commerce, Sardar Ahmad Nawaz Sukhera and Secretary Industries and Production, Aamir Ashraf Khawaja were also present and grilled the domestic sugar industry. The representatives of PSMA and Kissan Board also attended the meeting.
The agenda of the committee was as follows: (i) review stock variation in calculation of Cane Commissioner and FBR as of June 20, 2019 as agreed in last SAB meeting; (ii) review overall availability and stock position of sugar (remaining stocks of crushing season 2018-19 and expected closing stocks of crushing season 2018-19); and (iii) increase in sugar price for further decision.
The price of sugar has increased by 29 per cent – from Rs 58.47 per kg to Rs 75.38 per kg in August 2019 which is a cause of concern for the government. The Price Monitoring Committee in its recent meeting expressed serious concern at the increase in sugar price.
According to an official statement, the meeting also discussed sugar export to Afghanistan and China and decided that surplus sugar will be ensured in the local market prior to allowing further export of the commodity. It was decided to convene another meeting of SAB in October wherein the cost of sugar will also be determined.
Informed sources confirmed that the Advisor warned the sugar industry that the government will consider imposition of ban on sugar export if the current increasing trend in its price continues. The meeting discussed different options to maintain a balance in export viz-a-viz availability of commodity in the domestic market at a reasonable price.
The Advisory Board discussed pros and cons of importing raw sugar for processing and export to China if confirmed orders are received. Informed sources told Business Recorder that there was a huge difference in stock figures of FBR and Provincial Cane Commissioners. According to Cane Commissioner’s report, total stocks were 3.555 million tons as of June 30, 2019 whereas FBR claims that stocks were 2.914 million tons, showing a difference of 0.641 million tons.
FBR calculated the stock position for taxation purposes in 2018-19 which is not a regular practice of FBR therefore it seems that FBR stocks may not be accurate. According to the Cane Commissioner Sindh, FBR has collected the dispatch sugar figures, which is the physical exit of the commodity from the gate of sugar mills, whereas office of Cane Commissioner Sindh has collected the sold stock figures, or the stock actually sold.