Market and Price Market and Price Impact AssessmentImpact Assessment

OBJECTIVESOBJECTIVES

To quantify the magnitude of the recent To quantify the magnitude of the recent increase in food pricesincrease in food prices

To assess the future outlook in different To assess the future outlook in different parts of the countryparts of the country

To understand the likely impact on To understand the likely impact on household food securityhousehold food security

To make recommendations for To make recommendations for government and humanitarian reliefgovernment and humanitarian relief

BACKGROUNDBACKGROUND

Wheat flour

Coarse rice

Lentil

Soyabean

2 % 5 % 18 % 24 %

Food prices in Nepal have not Food prices in Nepal have not increased to the same extent as increased to the same extent as on international markets on international markets

Very good recent paddy harvestVery good recent paddy harvest Good wheat harvest overall Good wheat harvest overall

(except in the Far and Mid-(except in the Far and Mid-Western hills and mountains)Western hills and mountains)

BACKGROUNDBACKGROUND Fuel shortagesFuel shortages

Transportation companies Transportation companies only able to use 20-30% of only able to use 20-30% of their capacitytheir capacity

Proposed fuel price increase Proposed fuel price increase of up to 25%of up to 25%

Inflation scaled up to 8.9% Inflation scaled up to 8.9% for the first three-quarters of for the first three-quarters of the fiscal year 2007/2008 the fiscal year 2007/2008 (Nepal Rastra Bank)(Nepal Rastra Bank)

Rising food prices are the Rising food prices are the major factor that increased major factor that increased the CPIthe CPI

Rise of 12.6% in food and Rise of 12.6% in food and beverages prices (53% of the beverages prices (53% of the CPI)CPI)

METHODOLOGYMETHODOLOGY Primary dataPrimary data

FSMAS field monitors and NDRI enumeratorsFSMAS field monitors and NDRI enumerators Market survey (5 traders per market)Market survey (5 traders per market)

• 357 retailers357 retailers• 153 wholesalers153 wholesalers

Household survey (5 households per market)Household survey (5 households per market)• 551 households551 households

Rapid urban survey (per urban area: 10 slum Rapid urban survey (per urban area: 10 slum households, 2 better off households, 5 traders)households, 2 better off households, 5 traders)

• 216 households216 households• 90 urban traders90 urban traders

Secondary dataSecondary data Department of Agriculture, FNCCI, Nepal Rastra Department of Agriculture, FNCCI, Nepal Rastra

Bank and Ministry of FinanceBank and Ministry of Finance

METHODOLOGYMETHODOLOGY

Geographical coverageGeographical coverage 40 districts40 districts 6 urban cities 6 urban cities ((Biratnagar, Biratnagar,

Birgunj, Nepalgunj, Dhangadhi, Birgunj, Nepalgunj, Dhangadhi, Kathmandu and PokharaKathmandu and Pokhara))

6 month recall6 month recall Prior to October 2007, food Prior to October 2007, food

price increases were marginal price increases were marginal Pre-harvest period for paddy Pre-harvest period for paddy

(highest prices of key (highest prices of key commodities)commodities)

India introduced the export banIndia introduced the export ban

PRICE CHANGESPRICE CHANGES

0 10 20 30 40

coarse rice

cooking oil

wheat grainMountain

Hill

Terai

Highest increases in nominal prices Highest increases in nominal prices cooking oil (30%)cooking oil (30%) coarse rice (23%) coarse rice (23%) kerosene (17%)kerosene (17%)

Less dramaticLess dramatic wheat grain and flourwheat grain and flour

Price of coarse ricePrice of coarse rice highest percent change in the terai and and the hillshighest percent change in the terai and and the hills highest absolute change in mountainshighest absolute change in mountains

Farm gate prices of paddy and wheatFarm gate prices of paddy and wheat highest increase for paddy in the mountains (24%)highest increase for paddy in the mountains (24%) highest increase for wheat in the hills highest increase for wheat in the hills (drought-affected) (13%)(drought-affected) (13%)

FACTORS DETERMINING THE FACTORS DETERMINING THE PRICE OF COMMODITIESPRICE OF COMMODITIES

Transport -related Transport -related (for hills and mountains)(for hills and mountains)

Imports from India Imports from India (for the terai)(for the terai)

Cost of transportation Cost of transportation increased by 27% on increased by 27% on average and further average and further increases are imminentincreases are imminent

TRADERS’ PRICE EXPECTATIONSTRADERS’ PRICE EXPECTATIONS

11% increase for coarse 11% increase for coarse ricerice

17% for traders in the 17% for traders in the Terai and hillsTerai and hills

8% increase for 8% increase for kerosenekerosene

Stabilization for cooking Stabilization for cooking oil oil (at a much higher price)(at a much higher price)

Wheat pricesWheat prices Decrease in the teraiDecrease in the terai Increase in the hills and mountains (esp. Mid and Far West)Increase in the hills and mountains (esp. Mid and Far West)

TRADE STOCKS AND SALESTRADE STOCKS AND SALES

Supply and sales Supply and sales volumes have dropped volumes have dropped for more than 60% of for more than 60% of traderstraders

40% less kerosene 40% less kerosene 30% less coarse rice30% less coarse rice 20% less beans, cooking 20% less beans, cooking

oil and fine riceoil and fine rice

Consistent with the price Consistent with the price increaseincrease

77% reported a decrease in the volume of sales77% reported a decrease in the volume of sales

Problems affecting business Problems affecting business

TRADERS’ RESPONSESTRADERS’ RESPONSES

IMPACT ON HOUSEHOLDSIMPACT ON HOUSEHOLDS

Most households depend on the market Most households depend on the market for coarse rice, cooking oil and kerosenefor coarse rice, cooking oil and kerosene

59% of HH expenses spent on food (73% 59% of HH expenses spent on food (73% for the poorest)for the poorest)

Increased by 5-15%Increased by 5-15% Highest percent in the Highest percent in the

TeraiTerai Highest absolute value Highest absolute value

in the mountainsin the mountains

Main hazards: Main hazards: food (unavailability/prices), food (unavailability/prices), drought, insufficient raindrought, insufficient rain

Food prices affected 57% of HHFood prices affected 57% of HH People are buying less/cheaper foodPeople are buying less/cheaper food Substantial increase of sales on credit Substantial increase of sales on credit May result in higher malnutrition ratesMay result in higher malnutrition rates

VULNERABILITYVULNERABILITY

IMPACTIMPACT

WAGESWAGES

The purchasing power of The purchasing power of households decreased households decreased because of the rise in because of the rise in commodity pricescommodity prices

PURCHASING POWERPURCHASING POWER

WEALTH RANKINGWEALTH RANKINGhousehold size

education index

land ownership (ha)

No of cattle

No of sheep/goat/pig

No of poultryNo of food sufficient months

cash income

food consumption score

expenditure on food

expenditure on non-food

Well-offUpper middleLower middlePoorExtreme poor

FOOD PRICE VULNERABILITY INDEXFOOD PRICE VULNERABILITY INDEX

Land access indexLand access index Food expenditure indexFood expenditure index Income source indexIncome source index

For Rural Nepal:For Rural Nepal:

Significant losersSignificant losers 42.2 %42.2 % 9.7 million9.7 million

Marginal losersMarginal losers 41.2 %41.2 % 9.5 million9.5 million

Marginal winnersMarginal winners 3.3 %3.3 % 14.3 million14.3 million

Significant winnersSignificant winners 0.5 %0.5 % 2.3 million2.3 million

13 %

35 %

11 % or 2.5 million people

17 % or 3.9 million people

RecommendationsRecommendations

Develop a joint market watch monitoring system.Develop a joint market watch monitoring system. Provide targeted food assistance to the identified Provide targeted food assistance to the identified

2.5 million most vulnerable.2.5 million most vulnerable. Closely monitor the additional 3.9 million who Closely monitor the additional 3.9 million who

are at high risk of food insecurity.are at high risk of food insecurity. Support agricultural initiatives to increase food Support agricultural initiatives to increase food

production (irrigation, seeds, credit etc.)production (irrigation, seeds, credit etc.) Expand the role of NFC in remote areas and Expand the role of NFC in remote areas and

improve the beneficiary targeting.improve the beneficiary targeting. Expand and strengthen nutrition-based Expand and strengthen nutrition-based

programmes such as MCHC and SF.programmes such as MCHC and SF.