Foreign Exchange Rationing and Wheat Markets in Ethiopia
This paper examines the developments in Ethiopia’s wheat markets, including the links between international and domestic prices for wheat, the implications of foreign exchange rationing (that effectively stopped private sector wheat imports), and the effects of sales of government wheat imports in 2008-09. Section 2 discusses the evolution of production and prices of cereals in Ethiopia, from 2000/01 to 2007/08, a period characterized by substantial increases in production accompanied by an upward trend in real prices. The macro-economic setting is described in Section 3, focusing particularly on developments from 2004/05 to 2008/09. Section 3 also includes a discussion of the basic analytical framework for assessing the effects of rationing on real exchange rates and domestic prices of wheat. Section 4 focuses on wheat markets, and includes a decomposition of nominal and real wheat prices over time and a description of the various wheat trade regimes that determined the relationship between domestic and international wheat prices in recent years. This section also includes results of a partial equilibrium analysis of the effects of alternative levels of government import sales on domestic prices and consumption of wheat. The final section summarizes the results of the analysis and presents policy implications.