Analysis of Factors Affecting Food Price Fluctuations in Rwanda

Commodity food prices have soared upwards dramatically in recent years. Unceasing upsurge in food prices is a big challenge for policy makers at global level and the instability of commodity prices is a major concern for most developing countries. Rwanda has not been out of danger from the negative consequences. This study aims at analyzing the factors causing the food prices to fluctuate in Rwanda. Using secondary data obtained from National Institute of Statistics of Rwanda (NISR) and International Monetary Fund (IMF) for period from 2009 to 2018; both univariate and multivariate analyses were conducted. Research findings revealed that price series of food, energy, education, health, transport, communication, exchange rate and GDP, all present a unit root meaning that they are not stationary at level and they have become stationary after first difference. Research also revealed that prices of food, energy, education, health, transport, communication, exchange rate and GDP are cointegrated and Johansen Cointegration Test confirmed that there is a stable and long run equilibrium relationship between food price and prices of energy, education, health, transport, communication, exchange rate and GDP. Research results shown that the coefficients R squared (R2) and adjusted R squared (R2) point out that about 92 % of the variation of foods prices in Rwanda is explained by changes in prices of energy, education, health, transport, communication, exchange rate and GDP. Researcher recommends that government should put strong control on monetary policies, foreign exchange market and also particularly on prices of various indispensable products such as fuel, water, electricity, transport, communication, transport, education and health to ensure prices remain in band whereby encouraging sellers and buyers in equilibrium for better welfare of all. Also government should increase resilience of producers and consumers to deal with price changes by supporting contract farming and price insurance mechanisms on the production side and by improving access to financial services on the consumer side.