Staple Food Price Volatility and Its Policy Implications in Kenya

This paper evaluates the trends in staple food price volatility in Kenya for maize, wheat and Irish potatoes relative to three other Eastern Africa countries (Ethiopia, Tanzania and Uganda) using the unconditional and the conditional standard deviation. The paper tests the volatility of food prices during the global food crisis of 2007–2008. Using monthly wholesale prices data for maize, wheat and Irish potatoes in Kenya for the period January 2003 to February 2012, the paper estimates the conditional and unconditional price volatility and compares it with similar estimates from Ethiopia, Uganda and Tanzania. Overall the volatility of commodity prices in Kenya as implied by the unconditional standard deviation is in the range of 12% to 32% with maize prices being the most volatile followed by Irish potatoes. Wheat prices are the least volatile in Kenya. Compared with the Eastern Africa region, maize and wheat markets in Kenya are more volatile than counterpart markets in Ethiopia, Tanzania and Uganda. Furthermore, Irish potato prices in Kenya are less volatile than markets in Ethiopia but more volatile than those in Uganda and Tanzania. Given the persistent commodity price volatility in Kenya, this study recommends several policy options to deal with price volatility. These include supply response stimulating programmes such as governments buying surplus as buffer stock at competitive prices; input subsidy programmes; food for work programmes targeted to the poor working in agriculture; and establishing market information systems to avail better information about prices and stock levels