AGRICULTURAL COMMODITY PRICE BEHAVIOR IN ETHIOPIA: INSIGHTS FROM INDEX ANALYSIS

Purpose: This study aimed to construct a price index for agricultural commodities in Ethiopia. Retail price data of agricultural commodities in five categories, cereals, pulses, oilseeds, root crops, and spices from 2010-2020 from three regions and one city administration were collected from the central statistics agency of Ethiopia (CSA). Design/Methodology/Approach: The Laspeyres average production quantity weighting index approach was used to construct the index. The findings show that prices of agricultural commodities revealed an ever increasing trend in all the three regional states and the Addis Ababa city administration despite the fact that there were variations across the areas. Findings: This persistent and continuing trend of agricultural commodity prices is highly likely to worsen consumers’ lives and would generally boost the cost of living in Ethiopia. If this trend continues, it would be difficult for the majority of the people of Ethiopia to afford to pay for food items. Once the price of a specific crop has increased, its possibility of declining below its previous average is unlikely. Practical Implications: Although the Ethiopian government is engaged in a process of modernization and making major financial reforms, there is no solid financial tool that could assist market participants to analyze risk and return in the agricultural commodity market. Originality/Value: Agricultural policy lacks instruments to shield neither farmers against potential losses induced by a reduction in the price of the crops they produce nor consumers against the increase in the cost of living induced by food price inflation.