The Impact of the 2010-11 Surge in Food Prices on African Countries in Fragile Situations

Report
from African Development Bank
Published on 23 May 2011 View Original

Barbara Barungi, Kazuhiro Numasawa, Adeleke Salami and Adalbert Nshimyumuremyi

1 – Introduction Africa’s growth outlook remains optimistic after the strong economic rebound from the global financial crisis. The region experienced an increase in annual GDP growth to 4.8% in 2010 from 3.1% in the previous year and is expected to average over 5% in 2011. The soaring global demand for commodities is arguably a key driver of the enhanced GDP growth during 2010. Prices for oil, minerals, grain and other raw materials continue to rise. In February 2011, the IMF commodity index increased by 4.5% over the previous month, spurred by energy and metal prices. Due to the endowment of such natural resources, many African countries have enjoyed short run gains from these price increases. On the contrary, rising global food prices continue to be a major concern for inflationary trends and increased food insecurity for most countries in the region particularly for net food importing countries.

Globally, 2011 was ushered in with rising food prices and increased volatility. Given the higher plateau of global food commodity pricing in the post-crisis period, food prices are predicted to remain well above their previous trend level before 2008. While the short term impact particularly on poor households requires immediate attention, this may also be a turning point that requires bold policy actions in addressing longer term structural challenges. The continued price increase and volatility will require that social protection and agricultural development measures become the centre of national government programmes and policies in developing countries. There is an opportunity for countries to adjust through adoption of innovative agricultural and trade policy responses so as to benefit in the medium to longer run from the high prices.

Conflict and post-conflict countries are among the most vulnerable to food price increases due to their weak policy management capacities coupled with low levels of crop production, negligible food stockpiles, limited financial resources for purchases in the global market by these economies that are already stretched in dealing with rehabilitation and reconstruction needs. These countries also face the serious policy dilemma of maintaining macro - economic stability while at the same time establishing social protection measures that warrant expansionary fiscal policy reforms.

The purpose of the policy brief is to: (a) examine the impact of the high and volatile global food prices on the most fragile economies in the region; and (b) share the experiences of the Bank in assisting countries respond to food price increases as well as put in place longer term measures for improving food security of regional member countries.

This policy brief is organized as follows. In the first section the recent economic outlook of fragile states is provided. Next the brief reviews the trends in global food prices and the impact on the region, followed by an examination of the underlying causes for increased vulnerability of food security in fragile states. Thereafter a section that discusses possible policy actions is presented and the final section examines the Bank’s response during 2008 – 2010 and recommendations for future action.