1. Market and Price Impact Assessment

2. OBJECTIVES To quantify the magnitude of the recent increase in food prices To quantify the magnitude of the recent increase in food prices To assess the future outlook in different parts of the country To assess the future outlook in different parts of the country To understand the likely impact on household food security To understand the likely impact on household food security To make recommendations for government and humanitarian relief To make recommendations for government and humanitarian relief

3. BACKGROUND Food prices in Nepal have not increased to the same extent as on international markets Food prices in Nepal have not increased to the same extent as on international markets Very good recent paddy harvest Very good recent paddy harvest Good wheat harvest overall (except in the Far and Mid- Western hills and mountains) Good wheat harvest overall (except in the Far and Mid- Western hills and mountains)

4. BACKGROUND Fuel shortages Fuel shortages Transportation companies only able to use 20-30% of their capacity Transportation companies only able to use 20-30% of their capacity Proposed fuel price increase of up to 25% Proposed fuel price increase of up to 25% Inflation scaled up to 8.9% for the first three-quarters of the fiscal year 2007/2008 (Nepal Rastra Bank) Inflation scaled up to 8.9% for the first three-quarters of the fiscal year 2007/2008 (Nepal Rastra Bank) Rising food prices are the major factor that increased the CPI Rising food prices are the major factor that increased the CPI Rise of 12.6% in food and beverages prices (53% of the CPI) Rise of 12.6% in food and beverages prices (53% of the CPI)

5. METHODOLOGY Primary data Primary data FSMAS field monitors and NDRI enumerators FSMAS 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 households, 2 better off households, 5 traders) Rapid urban survey (per urban area: 10 slum households, 2 better off households, 5 traders) 216 households216 households 90 urban traders90 urban traders Secondary data Secondary data Department of Agriculture, FNCCI, Nepal Rastra Bank and Ministry of Finance Department of Agriculture, FNCCI, Nepal Rastra Bank and Ministry of Finance

6. METHODOLOGY Geographical coverage Geographical coverage 40 districts 40 districts 6 urban cities (Biratnagar, Birgunj, Nepalgunj, Dhangadhi, Kathmandu and Pokhara) 6 urban cities (Biratnagar, Birgunj, Nepalgunj, Dhangadhi, Kathmandu and Pokhara) 6 month recall 6 month recall Prior to October 2007, food price increases were marginal Prior to October 2007, food price increases were marginal Pre-harvest period for paddy (highest prices of key commodities) Pre-harvest period for paddy (highest prices of key commodities) India introduced the export ban India introduced the export ban

7. PRICE CHANGES 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 dramatic Less dramatic wheat grain and flour wheat grain and flour Price of coarse rice Price of coarse rice highest percent change in the terai and and the hills highest percent change in the terai and and the hills highest absolute change in mountains highest absolute change in mountains Farm gate prices of paddy and wheat Farm 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 (drought-affected) (13%) highest increase for wheat in the hills (drought-affected) (13%)

8. FACTORS DETERMINING THE PRICE OF COMMODITIES Transport -related (for hills and mountains) Transport -related (for hills and mountains) Imports from India (for the terai) Imports from India (for the terai) Cost of transportation increased by 27% on average and further increases are imminent

9. TRADERS PRICE EXPECTATIONS 11% increase for coarse rice 11% increase for coarse rice 17% for traders in the Terai and hills 17% for traders in the Terai and hills 8% increase for kerosene 8% increase for kerosene Stabilization for cooking oil (at a much higher price) Stabilization for cooking oil (at a much higher price) Wheat prices Wheat prices Decrease in the terai Decrease 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)

10. TRADE STOCKS AND SALES Supply and sales volumes have dropped for more than 60% of traders Supply and sales volumes have dropped for more than 60% of traders 40% less kerosene 40% less kerosene 30% less coarse rice 30% less coarse rice 20% less beans, cooking oil and fine rice 20% less beans, cooking oil and fine rice Consistent with the price increase Consistent with the price increase 77% reported a decrease in the volume of sales 77% reported a decrease in the volume of sales Problems affecting business

11. TRADERS RESPONSES In case we need a box

12. IMPACT ON HOUSEHOLDS Most households depend on the market for coarse rice, cooking oil and kerosene Most households depend on the market for coarse rice, cooking oil and kerosene 59% of HH expenses spent on food (73% for the poorest) 59% of HH expenses spent on food (73% for the poorest) Increased by 5-15% Increased by 5-15% Highest percent in the Terai Highest percent in the Terai Highest absolute value in the mountains Highest absolute value in the mountains Main hazards: food (unavailability/prices), drought, insufficient rain Main hazards: food (unavailability/prices), drought, insufficient rain Food prices affected 57% of HH Food prices affected 57% of HH People are buying less/cheaper food People are buying less/cheaper food Substantial increase of sales on credit Substantial increase of sales on credit May result in higher malnutrition rates May result in higher malnutrition rates VULNERABILITY IMPACT WAGES The purchasing power of households decreased because of the rise in commodity prices The purchasing power of households decreased because of the rise in commodity prices PURCHASING POWER

13. WEALTH RANKING

14. FOOD PRICE VULNERABILITY INDEX Land access index Land access index Food expenditure index Food expenditure index Income source index Income source index For Rural Nepal: Significant losers42.2 %9.7 million Marginal losers41.2 %9.5 million Marginal winners3.3 %14.3 million Significant winners0.5 %2.3 million

15. 13 % 35 %

16. 11 % or 2.5 million people 17 % or 3.9 million people

17. Recommendations Develop a joint market watch monitoring system. Develop a joint market watch monitoring system. Provide targeted food assistance to the identified 2.5 million most vulnerable. Provide targeted food assistance to the identified 2.5 million most vulnerable. Closely monitor the additional 3.9 million who are at high risk of food insecurity. Closely monitor the additional 3.9 million who are at high risk of food insecurity. Support agricultural initiatives to increase food production (irrigation, seeds, credit etc.) Support agricultural initiatives to increase food production (irrigation, seeds, credit etc.) Expand the role of NFC in remote areas and improve the beneficiary targeting. Expand the role of NFC in remote areas and improve the beneficiary targeting. Expand and strengthen nutrition-based programmes such as MCHC and SF. Expand and strengthen nutrition-based programmes such as MCHC and SF.