Patterns of Food Availability and Inflation in Africa360°ANALYSIS
David Li comments on the reasons behind food scarcity in several African nations. An intersection of weather conditions, food policy, biofuels and international market forces are responsible for the unique situation in each country.
Since the 2007-2008 world food price crisis that led to social unrest around the globe, world food prices temporarily abated before climbing to an all-time high this past February. According to the United Nations Food and Agriculture Organization’s food price index, current food prices are about twice as expensive as they were in 2005. Moreover, the World Bank reported a year on year food inflation of 36 percent in March. Rising food prices along with high rates of youth unemployment, government corruption, and lack of political freedoms was a key factor in fomenting protests across North Africa and the Middle East earlier this year. While the world has heard most about food related protests in these two regions, the strain is also being felt across the whole of Africa.
Africa as a whole is a net importer of food, relying on the more developed agricultural sectors of regions in South America and Europe for basic foodstuffs. Egypt, for example relies on food imports for over half of its domestic consumption. Local food prices in many of Africa’s developing countries have not risen as quickly as international prices. Egypt, Ghana, and Uganda actually all experienced a decline in food prices between December 2009 and 2010. This is in part due to the depreciation of the dollar against a number of other currencies, which has stemmed the impact of the changing price of food in dollars. But on average, food prices have still grown sharply during 2010, with increases in the price of wheat and maize far outstripping that of rice. While increased prices for basic foodstuffs have hurt consumers, especially in urban areas, African farmers working in industries that export agricultural products have profited. Producers of cocoa in Côte d´Ivoire benefited from the lifting of a ban on their cocoa by the EU following the arrest of their former incumbent president Laurent Gbagbo. Africa’s biggest coffee producers, Ethiopia and Kenya, have been helped by both the rising cost of their export and poor harvests due to unfavorable weather conditions in other major producing countries such as Colombia and Brazil. However, this benefit enjoyed by producers of cash crops is insignificant when compared to the hardship suffered by the normal consumer of food crops in Africa.
The causes of this most recent period of food inflation in Africa are manifold. Poor weather conditions hurt food production in significant food exporting countries. Sugar exporter Brazil suffered from dry weather, and India sugar output was reduced by overly-heavy rainfall, and also by infestations, and crop diseases. A number of wheat exporting countries also suffered from adverse weather, notably Russia, which has banned the export of wheat in response to a drought. Food production in African countries such as Benin, Madagascar, Morocco, Mozambique, Tunisia and Zimbabwe were all also hurt by poor weather conditions. There are some rare exceptions to this trend: Zambia, according to its Central Statistical Office has produced a surplus in a variety of cereals each of the last three years.
Other factors contributing to the recent spike in food prices include governments increasing their stockpiles of foodstuffs in order to combat food scarcity, higher energy prices resulting in part from the rising cost of crude oil, and increased production of biofuels. High crude oil prices have the double effect of not only increasing the cost of production and transportation, but also making the conversion of corn products into biofuel more profitable. Speculation in financial markets and commodity markets is also a contributor to the recent volatility in commodity prices.
Many African governments have made policy changes to counter food inflation, often as a response to popular pressure. Kenyan officials have reduced their tax on kerosene, removed import duties on wheat and maize, and raised the minimum wage. While the first two changes are likely to ease pressures on consumers, the third may have the undesirable effect of increasing the demand for food. In January, Ethiopian authorities responded by placing price controls on basic foodstuffs such as meat, cooking oil, sugar, and flour. As a result, however, consumers in the country now face increased difficulties due to shortages of goods. The reality of narrower profit margins has forced many retailers to either simply abandon the sale of certain staple foods or circumvent the imposed price ceiling by entering the black market. The government has blamed rising international food prices, but the International Monetary Fund has shifted some of that blame back onto governments, citing their borrowing and printing of money in order to pay for domestic infrastructure projects as a primary reason for overall inflation.
Food subsidies in Egypt, which have long been a part of government policy, reach 63 million (i.e. 85 percent of the population) of its citizens, decreasing the market price of wheat, sugar, rice and vegetable oils. Despite pressures on the national budget, the Egypt cabinet approved the allocation of an extra $1.7 billion to combat food inflation in April. In response to an inflation rate that has risen every month so far this year, Tanzania has implemented a ban on food exports, particularly maize.
The implications of food inflation in Africa will be far-reaching. For one, rising food prices will put upward pressures on the overall inflation rate because many African countries measure domestic inflation using a basket of goods and services, in which the price of food is often given the heaviest weighting. There are predictions, for example, of inflation over 15 and 20 percent in South Africa and Kenya, respectively. This may force their governments to raise interest rates as a medium to long-term method of controlling inflation, but could also have the unwelcome side-effect of choking an expansion of their economies. Another potentially prevalent effect of food inflation is the increased militancy of organized labor. This is currently the case in South Africa, where labor unions in the mining industry, faced with a rising cost of living, are demanding wage increases in order to keep up with overall inflation. Their wage demands are, however, far above the annual rate of inflation in South Africa.
Based on the projected continuation of the underlying reasons behind the current trend of food inflation in Africa, high food prices seem to be here to stay. Simultaneously, pressure on governments to intervene will be great. Without some sort of relief in the cost of living, repeat protests a la 2007-2008 will reemerge.