Yemen Market Study
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Table of Contents Table of Contents .................................................................................................................................... 2 Executive Summary ................................................................................................................................. 3 Background and Objectives .................................................................................................................... 6 Methodology and Sampling Framework ................................................................................................. 7 Household Food Security and Markets in Yemen ................................................................................... 8 Market Functioning and Determinants of National-Level Food Availability in Yemen ........................ 14 Yemen, International Markets and the Macro-economy ................................................................. 17 Domestic Yemeni Markets .................................................................................................................... 25 Structure and Conduct ...................................................................................................................... 25 Market Integration and Food Flows ..................................................................................................... 31 Household Food Access: Purchase conditions for households ............................................................. 34 Evolution and Behaviour of Prices .................................................................................................... 34 Presence of shocks and their impact ................................................................................................ 41 Impact on Local Availability .......................................................................................................... 49 Purchasing Power and Terms of Trade ......................................................................................... 53 Market Recovery and Response Capacity ............................................................................................. 57 Bibliography .......................................................................................................................................... 64 2 | P a g e Executive Summary Yemen is a net-food-importing country with an import dependency for 90% of its overall domestic wheat and 100% of its rice requirements, the country’s two main staples. As such, Yemen’s population suffered considerably during the 2007-2008 food price crisis. Although prices have decreased since the peak, they remain well above pre-crisis levels, continuing to erode the purchasing power of already poor households. The functioning of markets and the behaviour of traders play a pivotal role in ensuring household food security. Imports constitute the most important source of availability of wheat and rice at the national level. The trends in imports related to demand and also in relation to the production of other important cereals such as maize and sorghum seem highly reactive and reflect that importers are reactive to the demand situation in-country. While production of sorghum and maize is very important in the rural areas to consumption, markets remain the most prevalent forum when looking at issues related to food access and food availability. Home consumption of own-produced crops is most prevalent in Dhamar, with a mere 13.2 percent of crops consumed on-farm, followed by Rayma (12.6 percent), Amran (9.9 percent) and Sana’a (9.2 percent). While the evolution and level of imports up to and including 2009 indicate good market functioning at the national level, high inflation rates and a depreciating currency are likely to have an adverse impact on the evolution of prices within Yemen – this is evidenced by the fact that although international prices decreased significantly in 2009, domestic prices in Yemen have remained at high levels, though lower than their peak in 2009. In fact, the pass-through of international prices to the domestic markets is not particularly high, thus indicating that the domestic market structure is more important than international market dynamics in determining staple prices in Yemen. Markets in Yemen are characterized mainly by non-competitive behaviour, with a few large importing companies responsible not only for importing the majority of wheat and rice which is present on the markets in Yemen, but also for milling the wheat into flour and ensuring its distribution across a network of agents and sub-agents present in every governorate of Yemen. In fact, most traders source the commodities which they sell on the market within the governorate in which they operate. If not, the main source markets are Aden, Hodeida (where the ports are located) and Sana’a, the capital city. The largest importer-cum-miller in the country holds 56 percent market share. The importers also hold much of the margin along the wheat chain, along with retailers. In fact, over 60 percent of traders believe that prices will continue to increase, and that the main reasons for this are due to the monopolistic behaviour of larger traders, and also due to availability problems in highlighted in Hajja, Amran and Hodeida. The source of these changes on the market seem to be a combination of the high food prices that continue to impact Yemen – for a variety of reasons, including a poor macro-economic situation as well as a likely non-competitive domestic market which puts added pressure on the prices of key staple foods – and social instability. These changes are unlikely to have a temporary impact, but are likely to be persistent issues on the market. Thus, any programme decisions made should actively take into consideration the most salient points that have been identified across the board: 3 | P a g e Decrease in credit extension to consumers Decrease in the scale of business conducted by traders, thus likely impacting availability and quality of food on the markets Increased transports costs Increased prices on the markets While availability of food at the national level across the commodities under study seems to be at normal levels, there is an identified availability problem in certain governorates as a result of the continued impact of high food prices and social conflict. The governorates whose majority of markets, according to key informants, are suffering from diminished availability are Hajja, Ad Daleh, Taiz, Al Hodeida, Lahj, Al Mahweet, and Al Baidha. In addition to this, traders in Rayma and Abyan also indicate that there is diminished local availability of food on the markets. Thus market functioning in these governorates seems to be compromised, and continued food assistance is likely a more appropriate response to avoid negative impacts on the markets and on the beneficiaries. Traders and key informants on the markets identify a clear lack of purchasing power on the markets, indicating that households have decreased the number of visits to the market, that they buy in fewer quantities and request greater extension of credit. In fact, there has been a noted decline in daily sales volumes of traders mainly as a result of a lack of effective demand on the market. While a quick analysis of terms of trade for the poorest livelihoods, with the exception of wage labourers, indicates a fairly positive trend in purchasing power compared to last year, there is insufficient information to confirm whether this result is reliable or not. Traders in most markets across Yemen indicate their ability to provide supplies sufficient for an increased demand on the market. However, there are important constraints which traders face including the lack of access to credit and the lack of own capital, which might prove a bit of a constraint to the increase in availability on the market. However, lack of demand is also one of the more important factors that seem to define the availability problems on the markets. There are important exceptions. Traders in Hajja, Hodeida and Amran indicate the least potential responsiveness to an increase in demand, and also prove to have a higher incidence of traders who believe that increased demand would have an inflationary impact on the markets due to a lack of availability. The market conditions in Yemen present a confluence of various factors, which have to be carefully considered when taking programming decisions. The fact that the macro-economy has been defined by high inflation rates, price volatility and continued high price levels indicates the need to strengthen market monitoring systems. Furthermore, it has been identified that the livelihoods group with the greatest prevalence of food insecurity as measured by the food consumption score are those households who are dependent on wage labour. There is currently no system monitoring unskilled wage labour on the markets, and this should be undertaken as part of any coherent food security monitoring system that is being considered in-country. Although terms of trade seemed to have ameliorated compared to the same time in 2009, it will be important to monitor the situation if prices of the main consumed products continues to increase in the coming months, as expected by traders. Thus, it would be important to consider monitoring the 4 | P a g e trends in terms of trade as part of the market monitoring system, including the terms of trade of between livestock, wage labour, agricultural crops and wheat/wheat flour