Food: Price shock hotspots
JOHANNESBURG, 6 August 2012 (IRIN) - As global grain prices begin to climb, the Sahel countries of West Africa, those in the Horn, and in central and southern Africa - many of which depend mainly on imported cereals to feed their people - are most exposed to the impact of more expensive food, said the UN Food and Agriculture Organization (FAO). Around the world plenty of people are already living with high food prices, and more will be joining them.
The international prices of cereals began to rise to record levels in mid-June this year, when the implications of one of the worst droughts ever to hit the US, the world's largest producer of maize and soybeans, became breaking news and commodity markets reacted.
Soaring food prices in 2007/08 forced the poor to sell their assets, cut down their spending on quality food, education and health, leaving them more vulnerable to future shocks, said FAO.
The transmission of high international prices to consumer prices in countries is not only the result of import dependency and domestic production. Other factors, in particular policy interventions, also play a role, said Liliana Balbi, Team Leader of the FAO Global Information and Early Warning System (GIEWS). "In North African countries, for example, the price transmission to consumers during the food price crises of 2007-08 and 2010-11 was limited due to extensive food subsidies."
Gary Eilerts, programme manager at the Famine Early Warning Systems Network (FEWS NET), run by the US Agency for International Development (USAID), told IRIN, "In the food insecure world, in general, the pricing impacts may, at least initially, be more muted and relatively delayed, due to less reliance of many of these countries on the global grain trade."
FEWS NET monitors 30 countries vulnerable to food insecurity. "Abundant rice supplies will help to counter price rises in some countries. An important issue to watch is whether, and to what extent, wheat prices are carried along by the corn/maize prices, and thereby put growing pressure on bread prices, a product heavily consumed by urban populations in the food insecure world."
In an assessment exclusively compiled for IRIN, GIEWS said countries in the Sahel are going through a food crisis triggered by reduced cereal harvests in 2011 and already high food prices, and are very sensitive to shocks. The price of staple grains like sorghum, maize and millet have increased steeply across the Sahel, but the prices of imported rice and wheat have been mostly stable in recent months.
"A new price shock from the international market would dramatically aggravate the already serious food security situation," Balbi warned. Sahel countries - including Mauritania, Senegal, Mali, Burkina Faso, Niger, Chad, and Gambia - would be affected. The price of locally produced grains in many of these countries is already more than 50 percent higher compared to 2011.
The World Bank reported this week that since mid-June, wheat prices gave gone up by over 50 percent, and the price of maize has risen more than 45 percent, while soybeans are now almost 30 percent more expensive and up almost 60 percent since the end of 2011.
The Horn / East Africa
Cereal prices are moving up in several countries in northeastern Africa, partly on account of global hikes, leaving them vulnerable generally. Around 9.95 million people are still food insecure after drought hit the Horn in 2011.
However in Somalia, which was gripped by a food crisis in 2011, prices of local cereal staples declined sharply during the last 12 months from their peak in June 2011, and have been relatively stable at low levels since the first months of 2012, GIEWS reported.
In Sudan and South Sudan, prices hit record levels in all monitored markets following disruptions and the decline in production in 2012, said GIEWS.
Sudan relies heavily on imported wheat and FAO expects recent increases in international grain prices, mainly wheat, to affect local prices. Wheat prices in Sudan have declined moderately since the start of 2012, but in June the average price in the capital, Khartoum, was $659 per tonne - slightly higher (5 percent) than the levels in the previous year.
In June 2012, the price of the main staple in Khartoum, and in El Gadarif (a major surplus-producing region), was more than twice the price in June 2011.
In South Sudan, sorghum prices in July 2012 were some 220 percent higher compared to a year earlier.
Ethiopian cereal prices have been rising since February 2012, but are currently stable at high levels. But wholesale wheat prices in most of Ethiopia’s markets have also increased by an average 18-20 percent since the beginning of the year, mainly following increases in international prices, said GIEWS.
Maize in Uganda increased by about 60 percent between January and April 2012 and stabilized at around $390 per tonne, about 42 percent higher than a year earlier, said GIEWS.
In Kenya, maize prices have been rising by an average of 20-25 percent in the last three to four months in main markets as supplies from the short-rains harvest (completed in March 2012) have started running out.
Maize prices are very high in Tanzania’s main wholesale markets, but not on account of the international prices. In the main cities of Dar es Salaam and Arusha, maize was being sold in May/June at almost record levels of $350-380 per tonne because of higher energy and transport costs, and the renewed flow of maize exports since the ban was lifted.
The recent hike in the global maize price was almost instantly transmitted to South Africa, the largest maize producer in Africa. Southern African maize importers like Botswana, Namibia and Swaziland will feel the sharp end of the price spike. Maize production in Lesotho - a major importer - has dipped by 77 percent compared to 2010/11, and the country will struggle to feed its people, as will others in the region.
Lesotho is still recovering from the impact of a food price shock in 2010 and subsequent flooding in the mountain kingdom, which has forced to spend millions buying food and material to repair damaged infrastructure. In 2011, crop production was affected by poor rains. Without factoring in the current price spike, the International Monetary Fund, in its May 2012 report, estimated that the cost of flood-related imports, and buying food and fuel until 2013, would amount to 4.2 percent of Gross Domestic Product (GDP), which the anticipated revenue from its diamond exports was not going to cover.
There is more bad news. In a global food security assessment and projection for the next 10 years, the Economic Research Services of the US Department of Agriculture (USDA) listed Lesotho among four countries where nearly 100 percent of the population is projected to remain food insecure until 2022. The other three are the Democratic Republic of Congo, Burundi and Eritrea.
"Angola also had a very poor harvest (dry weather) and is forecast to import larger quantities than last year, while Zimbabwe will also require more, however, their relatively good stock levels will also partially help to meet the larger deficit in 2012/13," Balbi said in an email.
Congo, Equatorial Guinea and Gabon in central Africa "are almost totally reliant on international markets to cover their cereal consumption requirements (wheat and rice)," said Balbi. "Central African Republic and Cameroon are normally self-sufficient in maize, their main staple, but have uncertain prospects for this year's cropping season, and may need to import from international markets in 2013.
"Moreover, they normally import from international markets significant amounts of wheat and rice, mainly consumed in urban areas."
North Africa and Middle East
Syria in the Middle East and Morocco in North Africa would be countries to monitor for food price shocks, though in the case of Syria, internal conflict and consequences of international sanctions on trade in addition to the spike in global grain prices could cause food security to deteriorate.
There is great uncertainty over how Syria's wheat crop will fare because of the prolonged civil strife, the GIEWS assessment noted, while wheat production in Morocco is expected to fall by 40 percent compared to 2011 because of poor rains.
Generally, countries in North Africa and the Middle East depend heavily on imports to satisfy domestic cereal consumption. "Even in good years they import from 30 to 70 percent of their cereal needs," said Balbi. "Although extensive food subsidies are in place, and food inflation is relatively moderate, their cereal import bills - and the burden of food subsidies on public budgets - increase considerably when international prices are high."
In Asia, Bangladesh, Indonesia and the Philippines, which rely on wheat imports, are countries that could also be susceptible to a global price spike.
There has been some concern over the huge import orders placed by China, one of the world's largest consumers of cereals. The China Daily newspaper reported that imports of all kinds of grain increased by 41.2 percent in the first half of 2012. The poor monsoon rains in some countries of Southeast Asia, and floods in others, are also causing concern.
The US hoped that rain in July might ease the drought, but the latest reports from the USDA say it has intensified, and the percentage of the maize crop expected to do well has dropped to 24 percent - 38 points lower than at the same time in 2011 - while soybean prospects have fallen to 29 percent - 31 points below the same time last year.
To illustrate the severity of the drought, the crop estimates for maize and soybeans were revised downwards by two percent in just one week. Any tightness in the supply of maize and soybeans, used mainly as livestock feed, could impact on wheat, the world's most widely consumed staple grain.
With the world's second largest population India is one of the largest consumers and producers of food, and any drought there will have a global impact.
This week, Agriculture Minister Sharad Pawar noted that 400 of India's 627 districts received poor monsoon rains but said it would be left to the affected provinces to declare a drought. The monsoon rains determine the amount of rice planted.
As weak to moderate El Niño conditions form in the Pacific Ocean, the Indian Meteorological Department said on 2 August the country was unlikely to receive enough rain before the season ended in September and declared the monsoon deficient (90 percent below a 50-year average), which means a drought.
Rising sea surface temperatures across the central and eastern Pacific Ocean herald El Niño, which typically disrupts the rainy seasons and causes lower rainfall in Central America, southern Africa, Australia, Indonesia, the Philippines and India.
FAO said the poor monsoons in India would impact on global rice production, but the overall world output of the grain was expected to increase. "In sharp contrast with trends observed in the maize and wheat markets, rice prices have remained surprisingly stable after gaining 2 percent in May," said FAO on its update on rice on 6 August. "Amid abundant rice supplies and stocks , the likelihood of a strong price rebound in coming months is minimal, but the future direction of rice prices remains uncertain".