Special brief: Market functioning in southern Somalia
Disclaimer: This paper addresses some of the issues related to the market feasibility of cash transfers. It does not consider issues related to the mechanism by which such transfers could be provided nor does it explore other aspects of the local context, including security and conflict, which would affect the overall feasibility of a cash-based response program. As with all information on southern Somalia, the situation is changing constantly and available information may not fully reflect current conditions.
Markets continue to function despite the many challenges market participants face and the reduction in effective demand caused by collapsing livelihoods and weak purchasing power across southern Somalia.
Prices for locally produced grains, white maize and red sorghum, will most likely continue to increase between now and December. As long as these cereals remain available, when they reach price parity with imported red rice, their prices will not increase significantly more as substitution of imported red rice will contain further inflationary pressure.
Our analysis suggests that markets may be able to increase the supply of imported rice in response to cash in the regions of Banadir, Bakool, Hiran, Bay, Lower Shabelle, Lower Juba, and some small parts of Middle Shabelle and Gedo.
Our analysis suggests that markets in Middle Juba are poorly integrated with other regions making a cash response a likely driver of excessive food price inflation. Some markets in northern Gedo and Middle Shabelle also show signs of poor integration and a more limited ability to increase the supply of imported rice.
In areas where neither cash transfers nor distributed food aid are possible or practical, creative interventions to increase staple food supply, complemented by a coordinated response in other sectors, may be necessary to save lives.
Food price inflation risk exists for any response programming in southern Somalia. Food price inflation remains likely even in the case of no further humanitarian response. However, the ability to substitute imported red rice for other cereals serves as a check on overall staple food price inflation. As long as this important commercial import market continues to function, prices can only rise to a certain degree. Responses will have to balance the need to contain further food price inflation with the need to save lives through adequate response.