It is globally believed that oil prices impact food prices in developing countries. However evidence on this linkage is scarce. The rising price of one or both of the commodities has a negative impact to the global economy, country seconomy and specifically households in rural areas. The objective of this study is to analyse on the effects of rising food and oil prices on rural households in Tanzania and specifically to: Analyse how consumer food prices responds to the global oil prices, Identify how the increasing prices of oil and foods affect nutritional status of the rural households, Identify how increasing oil and food prices impact consumer behaviour of the rural households, Analyse how increasing oil and energy prices impact consumer behaviour of the rural households and Examine how increasing oil and food prices impact welfare of the rural households.
Through different analytical review in East Africa show that global oil prices do affect food prices, but mostlythrough transport costs, rather than through biofuel or production cost direction.
We findthat global oil prices transmit much more rapidly to the pump and then to local maizeprices than do global maize prices, suggesting that the immediate effects of correlated commodity price shocks on local food prices are driven more by transport costs than bythe prices of the grains themselves.
Furthermore, we present evidences on the effects of oil prices and food prices to rural households in Tanzania.
The influence in increased headline inflation, change in consumption patterns, reduced purchasing power and commodity basket, declining living standards, Health deficiency and change in consumption behaviour of energy, all these build up the incorporated effects of rising food and oil prices to the rural households in Tanzania. Methods of Analysis used are non parametric techniques as to simplify the study, by using demonstrations and discussion.
The effects from the change in food and oil prices on household welfare, is a point of focus among policy makers and different scholars in Tanzania. Rising food and oil prices reflects significant threats to Tanzania’s macroeconomic permanence and overall development attainment. Global food prices has been increasing for about over 50% as a result of increasing costs of production, rising transport costs, the use of crops for bio-fuel, climatic issues and increased demand as a result of increasing population. Oil and other fuel prices increase were also forcing up food prices, specifically because of the high transport costs of food commodities such as maize, also increase in oil prices driven large increases in costs of production such as tractor and other machinery services, fertilizer costs as well as distribution channels(Felix A. Asante, 2008).
These situations on the global level always have impacts for individual country and the same translate and trickles down to the households. Specifically in 2008 and 2011, there have been rapid increases in the price of fuel on the world market and because of the importance of fuel in farming production activities, marketing and transportation of food commodities and the aim of every producer/farmer to cover their costs; hence there is inflation (rising general price level)(Dillon, 2015).
Maize being the main food source in East Africa particularly Tanzania, which occupies over 70.2 percent of the harvestable land of Tanzania, can be affected by oil prices(National Bureau of Statistics, 2019).
First, higher oil prices can lead to increase in cost of farming inputs including inorganic fertilizer and fuel for machinery (tractors) or pumps. Second, higher oil prices can lead derive higher transport costs, which affect the prices of traded commodities, maize grains included. Third, higher food prices can directly affect maize prices in the global market, due to stimulated demand for corn which can be alternatively used as bio-fuel, this then been transmitted to local markets through trade(Dillon, 2015).
Tanzania has been experiencing higher prices of food since early 2004. Prices of food items such as maize, cassava and dry cassava, increased by 44%, 50% and 44% respectively between 2003 and 2008 (Andrea and Thadeus, 2010). According to the National Bureau of statistics report (2012), the country experienced an increase in food by 22% between the month of October 2008 and December 2012. This sharp rise in global food and fuels prices in 2008 and in 2011 has influenced a significant increase in headline inflation in Tanzania. At the highest level, in December 2011, year- on-year inflation in the food and energy sub-indices reached 25.6% and 41.0% respectively (National Bureau of Statistics, 2019) .These global crises were expected to have a powerful impact on overall inflation, both directly, and in the case of energy prices, indirectly through the large share of transport and distribution costs that make up retail prices (Dillon, 2015)
With the increase in food spending, households will have less money to accommodate spending on other goods or consumer goods, investment in health, education and general livelihood. At the end of this study, the findings will explain the economic relationship between oil prices and food prices and what impact do they pose to the rural individuals in Tanzania.
This topic has been a topic of importance to different policy makers in the world. However different studies have been developed yet there is a need to do more research on this area of study as it has a massive importance to individual’s particularly low income earners. The motive behind this study is to analyse how welfare of the rural households is damaged through rising oil and food prices and then find way on how can it be revived through introducing favourable economic and social policies.
The general objective of this study is to analyse on the effects of rising food and oil prices on rural households in Tanzania and specifically to:
In this study under review, we review recent literature on the significant relationship between oil and food prices. Different five studies have been reviewed, that includes an extensive literature review itself(Oswald, 2016). In addition, there are three case studies: One from India(Bhattacharya, 2015), the other from US (Baumeister, 2004)and the last one from East Africa (Dillon, 2015). In addition, the food price watch of the World Bank provides a global wide perspective on recent developments. There is a notion on some of the literature review that, results are widely inconsistent(Oswald, 2016). The literature by Bhakat and Wurzburg disagree if there is a link between oil prices and food prices at all, and especially they also disagree whether biofuel products tend to create an additional linkage between oil and food markets (Oswald, 2016). Their own global analysis provides that biofuel items created a linkage between oil and food markets but additionally the food products which can be used for both purposes that are for food and/or for biofuel production (including maize etc.) are the only ones particularly impacted by the oil price. That is to say; other food commodities are apparently not influenced by oil price developments (Oswald, 2016).
On the other side of the coin, Baumeister and Kilian suggest that all food prices are faintly affected by the oil prices though that biofuel products did not make a new relation between them (Baumeister, 2004). For the case of India and East Africa, this shows diverging results. Bhattacharya and Sen Gupta made a conclusion that fuel inputs together with their oil prices have a very little influence and other factors such as agricultural wage variations matter a lot more (Bhattacharya and Sen Gupta 2015). However Dillon and Barrett, state that oil prices have a significant impact and that is derived by their importance in transportation costs (Dillon, 2015)
Therefore, there is a very strong and significant correlation between oil prices and food prices in general since 2008, also there has always been a weak and significant correlation between them since the 1960’s either (Food price watch 2015). These results are summarizes in Table 1 below.
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