"Africa is among the hardest hit" - Abdul B. Kamara, AfDB Research Division Manager
Question: Africa was one of the hardest hit regions of the world during the food crisis. How much of it was predicted?
Answer: Food prices started rising from 2002, but the steepest acceleration took place in 2007 and early 2008. Markets failed to respond to a life threatening development that had the potential of throwing millions of people in poor countries back into poverty.
In terms of its prediction and timing, the very sharp increases in food prices took almost every institution by surprise, though cereals stocks had declined significantly since 2004.
For this particular crisis, market speculation was among the key reasons frequently cited, as cereal markets became volatile. The global futures market (which trades in commodities as securities) is said to have grown by about 21% in three months to March 2008. The estimated value of the market is put at US$ 400 billion, 30% of which is in agricultural commodity investments. This is the period that coincided with the highest food price increases.
Besides market speculation, supply and demand Side factors were also at play. On the demand side, the conversion of cereals to meat had a role to pay due to high demand from China and India as a result of improving standard of living (it takes 3 kg of cereals to produce 1 kg of pork and 8 kg for 1 kg of beef). Also, on the demand side is the increasing conversion of cereals to bio-fuels, whereby bio-fuels production increased by about 25% in 2007 alone.
On the supply side, world cereal production in 2007 was up by 4.8% over the 2006 levels. However, stocks are at their lowest level in two decades. Global cereal stocks in 2006, especially wheat, were at their lowest levels since the early 1980s. Stocks in China, which constitute about 40 % of total stocks, declined significantly from 2000 to 2004 and have not recovered in recent years. Furthermore, global cereal productivity among the highest producing countries has been on a decreasing trend over the last three years (in 2005 a reduction of 3.5% and in 2006 productivity was reduced by 6.9%). This was mainly due to bad weather and erratic climatic conditions which negatively affected productivity.
Africa is among the hardest hit by the situation, given its relatively higher levels of poverty, and given that poor people spend a significant proportion of their income on food. Close to 33% of Africa’s population lives on less than one dollar a day, with about 30% of the poor (about 93 million) resident in urban areas.
Question: How did the crisis specifically affect African countries?
Answer: Currently high cereal prices are of particular concern to Africa since cereals and tuber crops constitute about 55 percent of the African food basket. Many countries on the continent have a high cereal dependency for their total calorie intake. For example, Madagascar (53%, mainly rice), Sierra Leone (54% mainly rice), Niger (69% mainly is coarse grains), etc. The degree of dependency on cereals, particularly on rice (imported rice), has increased significantly over the last decades.
Despite the growing importance of cereals in the consumption basket, growth in cereal production in Africa has, over the years, continued to lag behind consumption growth, especially for key cereals like rice and wheat, making the continent a net cereal importer. This situation is largely due to declining cereal yields, especially rice, which is barely one-third of global average yields.
A Bank estimate early this year shows that over twenty-two (22) African countries have a cereal import dependency in excess of 50% of total requirement, putting huge pressure on foreign exchange to pay the bills. The continent’s cereal import bill is projected to increase the most in the developing world, currently at 49 percent, an increase over 2007 (compared to 25% in Asia and 31% in Latin America. The Bank estimates that Africa’s cereal import bill for 2008 will be about US$10.5 billion.
Responses from African countries to rising food prices can be put into five major categories: i) reduced taxes on food imports; ii) price controls, increased food price subsidies or tighter monetary policy; iv) export restriction /export ban for cereals; v) rationing and stock release; vi); wage increases;
These measures, most of which reduce or contract the revenue flows, have serious fiscal implications and may lead to macro-economic problems. Macro-economic concerns also center around second-round effects on inflation and its burden on the poor, as well as possible balance of payments financing needs.
High inflation undermines gains made in many of these countries in reducing poverty over the past decade. In particular, there is the risk of policy reversal and unwinding of gains in poverty reduction in highly vulnerable countries.
Question: We know that the Bank, like other MDB’s, made some pronouncements with regard to the food crisis. What was this based on in terms of concrete knowledge of the situation on the ground?
Answer: Clearly, the first challenge for all institutions was to get a thorough understanding of the situation; and for the Bank, an understanding of the situation as it relates to Africa.
In this context, the Bank immediately carried out a vulnerability assessment of its Regional Member Countries (RMCs) to rising food prices. The assessment was on cereal balance (deficit or surplus) for each country, and on the ability to pay for cereal imports, as well as market openness.
Given increasing urbanization on the continent, and given that urban dwellers are generally net food buyers, as such populations are heavily affected by high food prices, this was give due consideration in the analysis.
In the same vein, state fragility was taken as a special case as such countries have weak capacity to respond to the crisis and a number of them are emerging from conflicts that have severely damaged their economies, making it impossible for such countries to have safety-nets in place. This analysis formed the basis for discussions within the Bank for appropriate responses for the categories of countries that emerged from the assessment.
The Bank also hosted a conference of RMCs and other donors in June 2008 for wider consultation and coordination of its responses.
It is on the basis of this analysis and consultations that the Bank came up with its proposed, short-, medium-, and long-term responses to address Africa’s food security situations (through a board document on the issue).
Short term responses entailed enhancing the availability of agricultural inputs at the farm level through realigning parts of ongoing portfolio, budget and balance of payment support for the importation of agricultural inputs.
For the medium-to-long term period, focus was on increasing food production and productivity of African agriculture, including rural infrastructure, water for agriculture, reducing post-harvest loses and agro-processing, operationalizing the African Fertilizer Finance Mechanism and Institutional capacity Building. In this context, the Bank raised its portfolio in agriculture to US$4.8 billion by injecting an extra US$1 billion.
Question: What should we be expecting in terms food security on the continent?
Answer: Even though prices have stabilized and have even started to fall since June 2008 (maize, wheat and rice), the general projection is that prices may not fall back to the 2006 level.
Africa’s food security cannot be achieved if due attention is not paid to the continent’s untapped potential for food production. This potential can only be realized by investing in agricultural production activities that can support the development of other sectors. The reaction by the international community and other partners, including the Bank, provide the greatest opportunity to take African agriculture to a new level that will result in significant spin-offs and sectoral linkages for the continent’s economic diversification and development.