Food prices rise in IRG areas in response to planned customs exchange rate hike

Despite the slight scale-up in food assistance in recent months, millions of households in Yemen are likely facing food consumption gaps due to significantly above-average prices of food and essential non-food commodities alongside sharing of assistance benefits. In the coming months, poor households are expected to be affected by further food and fuel price increases, and rural households in highland areas will experience seasonally declining access to income during the local agricultural offseason in February and March. Overall, Crisis (IPC Phase 3) outcomes are expected to remain widespread throughout the projection period. Emergency (IPC Phase 4) outcomes are expected to persist in Marib and emerge in Hajjah in February/March given expectations for gradually re-escalating conflict and large populations of displaced households who are highly dependent on assistance.

Oil exports from areas controlled by the internationally-recognized government (IRG) remain on hold due to the threat of drone strikes directed by the Sana’a-based authorities (SBA). In response, IRG authorities have adopted several measures to compensate for the significant loss of revenue. Most notably, on January 10, authorities announced plans to raise the exchange rate for customs duties by 50 percent (though some essential commodities, including key staple foods, are exempted) and raise electricity, fuel, and gas prices. While the IRG has yet to implement these plans, food prices reportedly increased in IRG-controlled areas – including by more than 10 percent in Aden – in the following days, according to key informants. Traders, the governor of Aden, and the SBA-based Chamber of Commerce, among others, criticized the anticipated impacts on household purchasing power. The measure is expected to primarily affect food commodity prices in IRG areas and non-food commodity prices across the entire country, as many non-food imports enter Yemen through IRG-controlled ports.

The exchange rate is a key determinant of food prices in Yemen due to the country’s high dependence on imports. In IRG areas, the parallel market exchange rate between the Yemeni rial (YER) and the USD was stable from November to December 2022, on average, according to data from FAO. However, the currency depreciated in January 2023, following the recent actions to address gaps in revenue. By January 19, the exchange rate in Aden was recorded at 1,242 YER/USD, a 4 percent increase from the same time of the previous month (1,193 YER/USD). Meanwhile, in SBA areas, the long-term trend of general stability in the local exchange rate continued in January.

Since the expiration of the UN-brokered truce on October 2, 2022, the warring parties have largely remained in an informal state of ceasefire as high-level negotiations continue. However, in January, a slight uptick in fighting in some frontline areas was recorded. This mainly took the form of artillery fire and drone attacks, with some small ground incursions reported, especially along the main frontlines of Marib city, Al Dhale’e, and Taizz. According to IOM data, a total of 990 households (around 5,900 individuals) were displaced from monitored areas in the month of January. While this is more than double the number displaced in the previous month, the total was 60 percent lower than the number displaced in January of last year (prior to the truce).

In January, official fuel prices generally remained stable in Aden. However, prices are expected to increase imminently once traders exhaust stocks of fuel that were purchased prior to the increase in the customs exchange rate. In SBA areas, the Sana’a-based Yemen Petroleum Company reduced official prices for both petrol and diesel by 5 percent in late December, despite a decline in fuel imports via the Red Sea ports from November to December. Prices remained stable in January 2023.