25 th Brussels Briefing on Food Price Volatility

25 th Brussels Briefing on Food Price Volatility: Implications for ACP Countries. European Economic and Social Center, Brussels: 30 th November 2011. “Actions being proposed to deal with price volatility. ” Tobias Takavarasha, NEPAD Agency

Structure of Presentation Introduction: Based on FAO-NPCA Joint efforts in assessing continental impacts I. Staple food price levels and volatilities in Africa II. Policy responses and actions III. The challenges and the options IV. Conclusions

I. Staple food price levels and volatilities in Africa n n n Prices of staple grains have become more volatile in Africa High prices not easily translated to better margins for producers due to high marketing and transport costs High marketing costs are due to poor roads, uncompetitive rates and controls

Staple food price levels and volatilities. . . n Staple grain prices have spiked two or three times in the last five or six years n n In 2008/09, major spikes in Benin, Cameroon and Ethiopia In 2010/11, major price spiked in Cameroon, Benin, Kenya, Mozambique, Ethiopia In 2010, price declined sharply in Ethiopia and Kenya Prices in Cameroon have remained very high since 2008

Staple food price levels and volatilities. . .

Staple food price levels and volatilities. . . n Prices have become more volatile n n Price volatility is higher in Africa than in Asia or Latin America (based on sample countries) Price volatility has become more serious in recent years (Table below)

Staple food price levels and volatilities. . . Average price volatility measured as standard deviation of log difference (real local currency 2005 - 2011) – based on sample countries (only 2 countries for maize in Asia) Maize Rice Wheat Africa Asia (excluding Exporting countries 9. 60 5. 73 5. 65 5. 52 4. 56 5. 17 Latin America 7. 44 4. 57 4. 84 Average prices (in USD per ton) are also high in Africa when compared to the low per capita income of the continent Maize Rice Wheat Africa 305 791 548 Asia 295 463 371 Latin America 498 906 811

Staple food price levels and volatilities. . . n High and volatile prices have negative consequences at micro levels for household and firm/ farm decisions as well as at macro levels for macroeconomic stability. n n food is typically a large share of the total household expenditure for the poor food price inflation major cause of overall inflation Volatile prices discourage investment by famers, traders, millers & other operators along the value chain food price instability slows down economic growth and the structural transformation that is the pathway out of rural poverty.

Staple food price levels and volatilities. . . n Some preliminary observation about volatility and price levels in Africa n n n Relatively more import dependent countries generally have lower price volatility but higher price levels Relatively self-sufficient countries have higher price volatility but lower price levels Price volatility is lower in countries with high levels of stocks (stocks as a share of total supply) n Stocks are important in stabilizing prices

Staple food price levels and volatilities. . . n n Price volatility is higher in countries sharing borders with politically unstable country n The political problems in Zimbabwe appears to have contributed to price instability in the region - Malawi, Mozambique and Zambia n The problems in DRC and South Sudan has affected prices in Uganda, Rwanda and to some extent in Kenya n The neighborhood effect – price volatility is transmitted among neighboring countries. Effective policies required to address the problem

II. Policy responses 2007/08 - 2011 1. Policy decisions in favor of consumers 1. 1 General or country wide support measure i. Suspension/ reduction VAT and other taxes - bring down domestic prices n e. g. Ethiopia, Kenya, Madagascar, Uganda, Burkina Faso, Senegal, Niger ii. Administrative price control or restrict private trade e. g Mali, Senegal, Malawi, Swaziland, Ethiopia iii. Reduction of tariffs and customs fees on imports n Most countries including Benin, Burkina Faso, Cape Verde, Ethiopia, Ghana, Kenya, Liberia, Madagascar, Mali, Nigeria, Rwanda, Senegal, Sierra Leone, Tanzania, Togo, Zimbabwe iii.

Policy responses. . . iv. Restricted or banned export – increase domestic supply n e. g. Ethiopia, Guinea, Kenya, Liberia, Malwi, Senegal, Tanzania. Togo, Zambia 1. 2 Targeted consumer support -Safety net (increased or introduced) i. Food or cash assistance n Benin, Burkina Faso, Kenya (Hunger Safety Net Program), Ethiopia (Productive Safety Net Program), Ghana, Guinea, Liberia, Madagascar, Nigeria, Senegal, Sierra Leone, Tanzania, Togo

Policy response. . . ii. Emergency food reserve n e. g. Ethiopia, Kenya, Benin, Ghana Cape Verde, Niger, Senegal, Togo 2. Producer support measures 2. 1. Production Support Programmes i. General (country-wide) support (fertiliser, seeds, etc) n Kenya, Rwanda, Tanzania ii. Productive safety net (targeted input subsidy) n Kenya, Malawi, Ghana, Malawi, Nigeria 2. 2 Market based support n Rwanda (Minimal price for rice producers), Kenya (Warehouse receipt system), Ethiopia (commodity exchange)

III. The challenges and the options n Food import may not be an option for most African countries – several reasons n Foreign exchange is a major constraint n Average annual food trade deficit (export minus import) increased: n n n 11. 3 billion in 1994 - 07 in Africa. Food import capacity is very low – n n from about 1. 5 billion in 1968 -83 to Average share of food import in total export is greater than 15% in most countries n A country is said to be food secure if its food import share is less than 8. 8% of total export (IFPRI study) Domestic prices can also be high if a country is dependent on food import

Tab 4. 6 - Averaged Food trade balance (thousand dollars) Trade Balance Regions 1968 -83 1984 -93 1994 -07 Eastern Africa 249329 -295287 -1338831 Middle Africa -120957 -579594 -1251724 Northern Africa -2536057 -5336774 -7949740 Southern Africa 824036 390447 327818 Western Africa 97025 -50409 -1091088 -1486623 -5871618 -11303565 Total Africa

The challenges and options. . . n Continental, regional and national approaches to prevent food price volatility must be based on: n n n Enhancing domestic production Ensuring political stability and security – collective effort of all neighboring countries required Promoting regional trade – RECs n Maize without borders - COMESA Increasing public and private investment in stocks – regional, national and community levels Institutionalizing social safety net Developing capacity for risk analysis and management

The challenges and the options. . . n CAADP provides an effective option in dealing with high and volatile prices n n The pillars which are comprehensive The CAADP compact and areas of focus Mainstreaming risk management, smart subsidies and employment in investment plans, food reserves, bio-energy policies The regional CAADP compact to facilitate regional integration

The challenges and the options…. . n o o The NEPAD Rural Futures Program Focuses on rural transformation and rural development Employment creation including youth Backward and forward linkages and rural marketing infrastructure Flagship projects with rapid impact.

IV. Conclusion Need to accelerate implementation of programs to improve productivity, reduce costs of production, create employment and reduce risk associated with agricultural production; introduce safety nets, smart subsidies in the short term, and encourage private sector investment in African agriculture.

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