Wheat flour prices fail to fall after harvest, primarily due to currency depreciation

• Lower remittances from the Russian Federation, higher prices for imported food, particularly wheat flour, and lower prices for cotton exports, are likely to cause lower incomes and higher staple food prices, placing many households in Stressed (IPC Phase 2) during the upcoming January to March lean season.

• However, rural households who rely primarily on their own grain production will have a normal level of food stocks or in many cases more food stocks than last year to consume during the winter and lean season.

• Above-average domestic production has caused a fall in the potato price, limiting income for producers, especially if it continues to fall during the winter. This will affect highland growing areas, including the Rasht Valley, where potatoes are a primary source of food and income. In many of these areas, remittances from the Russian Federation are also a key income source, so some households may be affected by a reduction in two major sources of income.

Since October, most areas of Tajikistan have had near average rainfall and snowfall. However, less precipitation fell across Gorno-Badakhshan Autonomous Oblast (GBAO), though it was more than this time last year. As a result normal planting of winter crops, mainly wheat, is ongoing and nearly complete. Overall, average to above-average precipitation is forecast for the October to May wet season during El Niño. With continued precipitation, winter and spring crops are likely to develop normally this year. However, heavier rainfall and snowfall and above-average temperatures increase the risk of flooding during the spring of 2016, from February to May.

The Tajikistani somoni (TJS) has depreciated consistently against other international currencies, particularly the US dollar (USD), since November 2014. By mid-December, it had depreciated 22 percent against the USD and 16 percent against the Russian ruble (RUB) since January 2015. The depreciation is driven by a variety of factors, including that remittances are bringing in less money than in previous years and that the international prices for cotton and aluminum, the key exports, are lower. With lower export earning, the country’s foreign exchange reserves have decreased. Though the National Bank of Tajikistan (NBT) has imposed stricter regulations on private-sector foreign currency transactions since April, the currency has continued its slow depreciation.

With continued depreciation of the currency this year, the prices of most imported foods are higher than last year and the five-year average. First-grade wheat flour, mostly imported from Kazakhstan, had a stable price from October to November, but the November price was 22 percent above the five-year average. On other hand, the price of potatoes, the “second bread” of Tajikistan as a key staple food, and a major cash crop for households living in the highlands, especially the Rasht Valley, are much lower than last year. The national-average potato price in November was 41 percent less than last year and was 12 percent below the five-year average. The tremendous drop in prices this year reflects more production. The larger volume of production was a result both in an increase in planted area, likely related to unusually high potato prices last year, especially when compared to other possible crops such as wheat. Overall, lower potato prices benefit households who are net purchasers of potatoes, including most poor households in Tajikistan. However, net producers of potatoes include many households in the highlands with the largest concentration being in the Rasht Valley. While these households will have larger stocks of seed potatoes and potatoes for household consumption during the winter and lean season, their incomes will be much lower than they anticipated earlier this year, and, at this point in the agricultural season, there are few opportunities to access other income sources.

With near average grain and cotton harvests, it is expected that households will have normal access to food and income sources to buy stocks for the winter and upcoming lean season. While poor households receive little in terms of cash payments for work growing cotton, the lower international price for cotton this year has resulted in lower prices for seed cotton and late payments to cultivators. In November, the Cotton “A” Index of cotton traded in eastern Asia was 16 percent less than two years ago. The low price is due to the persistence of a very high level of cotton stocks for the past two years. While this has limited impact on incomes of poor households, it will decrease earnings on exports, an important source of foreign exchange, likely leading to further depreciation of the TJS against the USD and other internationally traded currencies. The wheat harvest was near average, but slightly larger than last year, increasing access to stocks for winter and the lean season for many households and increasing in-kind and cash payments for related agricultural labor. Many rural households will have more wheat stocks than usual this year, decreasing the need for purchases and thus, increasing food access. However, urban households may have somewhat reduced food access due to the expected, continued much higher than average imported wheat flour prices.

In Kazakhstan, the main wheat grain and flour exporter to Tajikistan, the wheat harvest is almost complete, and recent estimates are that 14 million metric tons (MTs) were harvested, similar to the five-year average but ten percent more than last year. The export price for Kazakh wheat grain decreased consistently since July, but it was stable from October to November at 26 percent below the five-year average. Persistent depreciation of the Kazakhstani tenge (KZT) is a major contributed to lower export prices, but with demand for wheat grain likely to remain stable or grow over the coming months and the volume of exports expected to be higher than last year, the prices are now stable. It is expected that Kazakhstan will export wheat grain and flour at a normal pace to Central Asian countries, including Tajikistan, during the rest of the 2015/16 marketing year.