Financial crisis will hurt agricultural markets

World cereal production is expected to hit a new record this year as high prices boosted plantings under generally favorable weather conditions, FAO said today in the latest issue of its "Food Outlook", a bi-annual commodity publication. World cereal production is forecast to be large enough to meet anticipated utilization in the short-run, and help replenish much depleted global stocks.

But the agency warned that the current financial crisis will affect agricultural sectors in many countries negatively, including those in the developing world.

Greater uncertainty

This year's record cereal harvest and the recent fall in food prices should, therefore, not create a false sense of security, said Concepcion Calpe, one of the report's main authors.

"For example, if the current price volatility and liquidity conditions prevail in 2008/09, plantings and output could be affected to such an extent that a new price surge might take place in 2009/10, unleashing even more severe food crises than those experienced recently," Calpe said.

"The financial crisis of the last few months has amplified downward price movements, contributed to tighten credit markets, and introduced greater uncertainty about next year's prospects, so that many producers are adopting very conservative planting decisions," Calpe said.

The report stresses that most of the recovery in cereal production took place in developed countries, where farmers were in a better position to respond to high prices. Developing countries, on the contrary, were largely limited in their capacity to respond to high prices by supply side constraints on their agricultural sectors.

Implications for the poor

The sharp 2007/2008 rise in food prices has increased the number of undernourished people in the world to an estimated 923 million. Lower international commodity prices have not yet translated into lower domestic food prices in most low income countries.

"There is a real risk that as a consequence of the current world economic problems people will have to reduce their food intake and the number of hungry could rise further," Calpe said.

Long-term challenges

The report says that world agriculture is facing serious long-term issues and challenges that need to be urgently addressed. These include land and water constraints, low investments in rural infrastructure and agricultural research, expensive agricultural inputs relative to farm-gate prices, and little adaptation to climate change.

To feed a world population of more than nine billion people by 2050 (around six billion today) global food production must nearly double.

Population growth will take place mostly in developing countries and for the greater part in urban areas. A shrinking rural work force will thus have to be much more productive. This will require more investments in agriculture, machinery, tractors, water pumps, combine harvesters etc., as well as more skilled, better-trained farmers and more efficient supply chains.

FAO  

It gets worse each day for Zimbabweans struggling with shortages and escalating food prices, now denominated in US dollars.

"There is nothing you can buy in local currency, everyone now wants foreign currency and this is causing so much suffering, as people are failing to buy food because they do not have any foreign currency," said Thabani Msipa in the southern city of Bulawayo.

At the beginning of October the Reserve Bank of Zimbabwe (RBZ) licensed hundreds of shops to sell goods in foreign currency, and unlicensed retailers followed suit.

Msipa gets a monthly remittance of R300 (US$30) from his two sons working in South Africa, but it is not enough. "The price of goods in the shops is too much, even in foreign currency. A 10kg bag of maize-meal is going for R100 (US$10) here in Zimbabwe; a similar bag costs about R40 (US$4) in South Africa."

Lindiwe Moyo, a primary school teacher, is even worse off: she has to feed a family of six on her meagre salary. "The only people who are accepting Zimbabwean dollars are vegetable vendors. We have been surviving for weeks on green vegetables from our garden, which we mix with soup from the tomatoes we buy from the local market."

She said simple basics like bread, maize-meal and cooking oil were all beyond her reach, and sometimes the family slept on empty stomachs. An average salary is Z$400,000, currently less than US$4 on the parallel market, but a loaf of bread costs Z$100,000 (US$1).

We have nothing left to eat

In theory, rural areas are better off. Although they face the same shortages as a result of a disastrous harvest and a staggering inflation rate of over 230 million percent, they do have access to wild foods - a traditional emergency larder in times of hardship.

Zimbabwe's food crisis was deepened by a three-month ban on NGOs imposed by the government in June, after accusing them of supporting the opposition. The ban was lifted at the end August, but the NGOs - central to relief work - are yet to resume full-scale operations.

"We have nothing left to eat and it is useless even checking with other villagers, as they also have nothing to eat, and we are just waiting for [the development agency] World Vision to resume food distribution," said Samuel Ndlovu, in the Nkayi district of southern Zimbabwe's Matabeleland North Province.

"Every day we eat the wild fruit that are available in the bush, but the fruits are not good to eat every day; and school children are no longer going to school but spend the whole day looking for the wild fruits."

When food does become available in the depots of the state-run Grain Marketing Board, a 50kg bag cost Z$1.4 million (US$14), far too expensive for most villagers, said local councillor Cain Ndlovu.

"As a result, you find that people from urban areas are the ones who buy the maize for resale in urban areas, where they sell the maize in foreign currency because it is also not available in urban areas," he explained.

"We should just have airlifting of food to affected areas, as is happening in the Darfur region [of Sudan] and other areas in the world, because very soon we will be recording fatalities," the councillor said.

The UN World Food Programme has warned that by the beginning of 2009, 5.1 million Zimbabweans - almost half the population - will be in need of food aid. The organisation has appealed for US$140 million to help meet those needs.

IRIN

Despite a good harvest in 2008 Nigeria’s grain stocks are running low causing cereal prices – which usually fall post-harvest – to climb, according to merchants and farmers in northern states.

The combination of low stocks and high prices could have dire consequences for the whole country, since northern states produce 70 percent of the food for Nigeria’s 131 million people, said Abdullahi Koya, head of Kano’s Dawanau market, the largest grain market in West Africa.

Grain merchants usually maintain strategic reserves from previous harvests, to release into country-wide grain markets when a new ‘lean period’ approaches, to send prices down.

But with 2007 yields drastically cut – some say by as much as half on previous years – by locust invasions and unusually brief rains, merchants’ stocks were near-empty by June 2008. This left merchants “in frantic competition to restock,” said Hakeem Ajeigbe, an agronomist with the Kano office of the International Institute for Tropical Agriculture (IITA).

“The good yield recorded this season will hardly offset the food scarcity that we have been experiencing since last year because all the food stocks have been depleted, which puts a strain on new stocks collected [from this year’s harvest],” Ajeigbe pointed out.

The 2008 grain yield has been 20 million tonnes, double that of 2007, according to Sabo Nanono, Kano head of the All Farmers Association of Nigeria (AFAN), Nigeria’s commercial farmers union.

Normally grain prices drop and remain comparatively low for several months following the September harvest, according to Koya. It is only after this that they start to rise as the dry season progresses, until they reach their peak in March, he said.

Farmers sell low, buy high

Merchants, desperate to re-stock, have been going village to village buying grains from cash-strapped farmers at very low prices, then stashing them in their warehouses rather than making available for sale, which also drives up prices, explained Sabo Nanono, head of the Kano chapter of AFAN.

Farmers are willing to sell cheap because they need immediate cash but are then forced to buy back grain weeks later at much higher prices.

“We need money to marry off our daughters, renovate our rain-washed homes and settle other domestic responsibilities,” farmer Usman Lawan from Badume village just outside Kano, told IRIN. “Our only source of money is our grains. We are desperate to raise money which is why we sell our grains cheaply.”

Most subsistence farmers in the north aim to grow enough grain to live off for approximately 12 months, selling off the surplus, according to Ajeigbe. But the 2007 yield lasted just three months, forcing farmers into debt.

According to residents of villages across Zigawa state, farmers there are leaving to find work in construction or casual labour in nearby cities, and more and more children from farming families are now seen on city streets begging.

Soaring prices “a bad omen”

A 50kg sack of millet which sold for US$25 in September 2008 now costs $38, a sack of maize has risen to $51 from $34, and cowpea has jumped to $59 from $42, Koya said.

“We are worried grain prices may not go down at all. Prices have started picking up just a month after harvest which is very unusual. It is a bad omen,” said Koya.

Farmers need credit

Not much has been done to alleviate farmers’ plight so far, Kano agronomist Ajeigbe said. “The Nigerian government is not seen to be doing anything to address the problem. It should have provided credit facilities to farmers through rural cooperative societies so they are not forced to sell their grains cheaply to merchants to raise immediate cash.”

This way, he said, farmers could repay the loans when prices rise, some months later.

But AFAN’s Nanono thinks a different strategy is needed. “Ideally the government should intervene by purchasing the grains directly from the farmers to keep as its own strategic reserve which it will resell to farmers at the same price when the food shortage bites before the next crop season.”

Currently the government runs a nationwide grain reserve, but individual states do not. Usman Bello, spokesperson with the Agriculture Ministry in Kano state, told IRIN this is set to change. “We have just concluded plans to set up our own strategic grain reserve, which we intend to re-sell at subsidised rates later on in the year.”

But they will still be buying the grain at market prices, rather than from farmers directly.

“In the long term, allowing merchants to have a field day grabbing grains from hapless farmers will lead to disastrous consequences,” farmers union leader Nanono warned. “If care is not taken, we will be faced with a worse food situation than last year.”

IRIN

Rural Zimbabweans have always turned to an emergency larder of wild foods to see them through hard times, but in this year of shortages and dizzying prices for all basic foodstuffs, the fruits and roots foraged from the bush are keeping many alive.

In the southern province of Matabeleland North, villagers are relying on a variety of wild fruits, tubers and okra-like vegetables, which become more abundant as the rainy season progresses.

"Everyday we eat the wild fruit that are available in the bush, but the fruits are not good to eat every day. And school children are no longer going to school but spend the whole day looking for the wild fruits," Samuel Ndlovu, from Dakamela village, told IRIN.

The World Food Programme (WFP) said in a recent statement: "A large number of farmers harvested little – if anything – this year, and have now exhausted their meagre stocks. Many hungry families are reportedly living on one meal a day, exchanging precious livestock for buckets of maize or eating wild foods such as baobab and amarula." About 28 percent of children under five are already chronically malnourished.

Esnath Nyoni, in the Lupane area of Matabeleland North, said her family had last eaten a decent meal in the previous week. They are now surviving on a bland porridge made from ground roots of the cassava tree, into which she squeezes the sweet juice of the brown plumb-sized cork fruit for flavour.

Households that still have maize-meal can stretch it by mixing it with the ground cassava tree roots. "The porridge doesn't taste good, but it gives people energy throughout the day when there is no food available; and for families with livestock, they then mix the meal with sour or fresh milk," said Nyoni.

Dried bean leaves (umfushwa in the Ndebele language) were a useful emergency ration when boiled, Nyoni said. "The advantage with dried umfushwa is that you can keep it for a long time from the last harvest, and it will still be fine until the next harvest, and it has a high nutritional value compared to some of the foods that people eat during droughts."
An alternative cookbook

The survivor's cookbook also includes, in the Shona language, the potato-like madhumbe and mufarinya, and several other edible and reputedly medicinal tubers, a range of berries, and wild vegetables such as derere - a type of okra - and nyeve, a bitter-tasting plant that can be boiled in a soup or eaten dried.

Care needs to be taken when foraging for wild foods: there have already been reported cases of accidental poisoning due to people picking the wrong plants, or preparing them incorrectly.

"This is now the time when the elderly, who have survived in previous droughts, play a crucial role, as the young people have no idea which trees have edible roots and which ones do not," said Themba Dlomo, another Lupane area villager.

A lack of inputs – seeds and fertiliser – drastically cut last season's harvest. The UN estimates that more than five million Zimbabweans - nearly half the population - will require emergency food assistance in the first quarter of 2009.

The hardship is exacerbated by an inflation rate of 231 million percent, which has pushed even price-controlled maize - in theory available from the state-run Grain Marketing Board (GMB) - way beyond the reach of rural Zimbabweans.

Villagers in Lupane alleged that maize delivered to the local GMB depot was finding its way onto the parallel market. "The maize arrives on a weekly basis but we do not get any, as it is transported to as far as Victoria Falls [on the border with Zambia], where it is sold in foreign currency, and we are left to scavenge for wild fruits with the wild animals," said Laiza Ncube.

For most Zimbabweans, eating wild plant foods is an indication of crisis, but since last year the University of Zimbabwe has tried to promote consumption as a sensible food security option.

"The nutritional properties and traditional knowledge of wild foods have been dismissed as 'old wives tales' or 'poor man's food'. Little is known about their health and nutritional benefits," Dr Maud Muchuweti of the Department of Biochemistry has maintained.

"We want to create more awareness of the value of indigenous wild plant foods and promote their effective utilisation."

IRIN 

Poor rains and rising rice prices have contributed to increasing malnutrition to alarming levels in at least three regions of Senegal. Following a rapid assessment in July 2008 by the UN and the Ministry of Health, the government has confirmed a malnutrition crisis in three of the five surveyed regions, with the most critical being Matam, where 17 percent of the children surveyed under five years old are malnourished.

Researchers surveyed Matam, Gossas, Guinguineo, Sedhiou and Goudomp, and concluded Matam, Guinguineo and Goudomp require immediate food assistance, while the other two regions require continued monitoring.

Youssouf Gaye, the head of the Food, Nutrition and Children division at the Ministry of Health, told IRIN Matam’s numbers are the most alarming of the five regions. Of the 670 children surveyed, 117 are malnourished.

Gaye said, similar to other parts of the country, Matam residents have had poor harvests and steep food price increases. The local purchase price of rice has increased 74 percent in the past two years, according to the Senegalese government. There is also less rice available; rice-exporting countries like Mali, Vietnam and Thailand have stopped exporting in order to feed their own people.

Poor rains have increased hunger levels across Senegal where agriculture is the main money maker for 85 percent of rural communities.

Gaye told IRIN Matam has high levels of malnutrition because of its higher number of immigrants, and how they choose to spend their money. “These immigrants do not take care of themselves. [Rather], they build homes, buy huge satellite dishes, and buy household appliances.”

But there are others among the region’s estimated 256,000 residents for whom malnutrition is not a choice.

Matam's rural villages bordering Mauritania have some of the country’s highest levels of poverty. The UN’s International Fund for Agricultural Development reports annual rainfall amounts in Matam falling by half within the past three decades, drying up rivers and cutting irrigation to water and cash-strapped farmers.

The nutrition director Gaye says the resulting malnutrition is stunting growth in children under five, which leaves them more vulnerable to illnesses. Gaye says long term, these children will have problems in schools. “Malnourished children cannot follow the curriculum like those who are well-fed.”

In the other surveyed regions, 10 percent were malnourished in Guinguineo, 13 percent in Goudomp, nine percent in Shediou and eight percent in Gossas.

Researchers are expected to assess four additional regions considered to be at high risk for malnutrition: Louga, Kebemer, Bakel, and Rufisque.

In 2001, UN member countries agreed to halve extreme poverty and hunger by the year 2015 in their adoption of Millennium Development Goals (MDG). In 2001, 23 percent of Senegal’s population suffered from malnutrition.

To meet its goal, Senegal would need to improve nutrition for one and a half million people, based on a Columbia University population estimate for Senegal in 2015.

IRIN 

Experts say many of the right conditions are in place across West Africa to make cash distributions work in the current global food price crisis.

Michael O’Donnell, head of hunger reduction for non-governmental organisation (NGO) Save the Children, said “the current food price crisis could be an opportunity for governments to work with NGOs and UN agencies to provide cash transfers to build up stronger social protection systems for the chronically poor.”

While agencies have been handing out cash in the form of vouchers for food and other items, straight cash, or through cash-for-work schemes for many years – WFP has been distributing vouchers as far back as 1994 in Pakistan – many are considering larger-scale targeted distributions over the coming year.

Providing cash in urban settings

Many of the West Africans who are most vulnerable to high food prices live in urban areas such as Ouagadougou, Conakry and Douala, according to numerous assessments, and providing cash rather than food can work well in these settings.

“In cities agencies can use new mechanisms to get cash to people for instance through bank or post office accounts, or by using vouchers in local shops… this can sometimes be logistically easier than handing out food,” O’Donnell said.

Further, towns tend to have large existing food markets, which means providing cash in this context is less likely to disrupt the market by driving down prices as it may do in smaller markets. “People have to be able to use the cash,” said Vanessa Rubin, Africa hunger adviser for NGO CARE International UK. “They must make sure they’re not going to reduce supply and so increase food prices.”

O’Donnell reiterates this. “There is rarely a case in a large town or city when you wouldn’t have enough food in the market for cash to work.”

Finally, though high food prices mean cash will not go as far as it used to, distributing cash can help boost markets for local foods which has been highlighted as an important means of avoiding skyrocketing import prices for staples such as rice.

Cash in slow-moving crises

While cash distributions have been used in rapid-onset emergency responses, such as in Sri Lanka after the tsunami, they work particularly well in slow-developing crises to reduce people’s vulnerability to shocks.

For this reason Rubin says cash transfers could work well in West Africa in the face of food price hikes. “This is a slow-moving crisis, and it is in these situations where cash can be most useful. We give cash in Niger for instance, to prevent the problem of food prices turning into a potential acute malnutrition crisis.”

CARE International started distributing cash in the region of Tahoua in southern Niger earlier this year, giving US$100 in the ‘transition season’ from January to April, and a further US$40 directly following the harvest in September and October in the hope that when food stocks are high, families will invest the cash.

“If we give the money at the right time and in the right way they can use it to support their livelihoods,” Rubin said.

Challenges

Experts cite a number of other advantages to cash transfers over food. They allow people to make their own choices with no conditions, according to Rubin, giving recipients dignity. “We assume they know best and trust them to reduce their own vulnerability. We can step back and learn from them.”

However, the oft-cited challenges associated with cash distributions apply equally to the current West Africa food crisis as they do elsewhere. For instance there are potential security concerns involved in distributing cash, particularly in cities prone to social unrest; cash may be more likely to be corrupted, and it is difficult to monitor and evaluate its impact, according to Paul Harvey, research fellow at the London think-tank the Overseas Development Institute.

When it comes to West Africa, while many vulnerable people live in urban areas, others live in remote villages with poor access to markets. “This doesn’t mean [cash] is inappropriate for this region, it just means agencies have to be more cautious and selective at where they target it,” Harvey pointed out.

He continued, “We need strong answers to allay all these fears. But what people often do is compare the risks of cash with other types of interventions and cash is often held to a higher standard than other interventions.”

"Shifting a tanker"

Despite persistent challenges, donors and agencies are clearly interested in cash in the West African context and others. The World Food Programme (WFP) is considering a cash distribution through NGO partners to 30,000 people in Burkina Faso, in the capital Ouagadougou and in Bobo-Dioulasso in the coming months, and is currently assessing the feasibility of distributing cash or cash vouchers in Liberia, Ghana and Senegal according to Ugo Gentilini, WFP policy analyst in Rome.

“The variety of contexts in which we work means we need to explore new tools,” Gentilini told IRIN, adding, “WFP receives half of its donations in cash rather than food, which gives us more flexibility in how we distribute our aid.”

Meanwhile the UK department for international development (DFID) funds cash programmes in Zambia, Kenya and Ethiopia and says Harvey, “there is a genuine commitment for DFID to get involved in cash on a wider scale.” And the EU humanitarian fund ECHO has recently completed a big review of cash distributions.

“Donors are changing quite quickly,” said Harvey. “Cash still remains quite new and if you look at how the debate has shifted over the past four years, it’s been quite rapid… remember, we’re shifting a tanker, not a yacht.”

IRIN 

High fertiliser and fuel prices in South Africa may impact the 2009/2010 maize harvest in the region's largest producer, a grain farmers' body warned.

"The high costs will influence farmers to plant less - it is difficult to predict by how much now," said Nico Hawkins, manager of commodity services at Grain South Africa (Grain SA), a farmers' association that provides strategic support to all grain producers in the country.

The cost of fertiliser has shot up by more than 100 percent - higher than the official inflation rate of around 11.6 percent - fuel prices have increased by over 70 percent since August 2007, and seed prices are up by more than 30 percent, Hawkins said.

Studies by Grain SA show that if farmers are to recover the high cost of inputs in 2008, they will have to hike prices by 63 percent in 2009. "It is highly unlikely that they will be able to charge that amount and recover the money, so farmers are going to plant less," Hawkins explained.

South Africa's national consumption requirement of the staple food is around 9 million mt, and surplus maize is exported to neighbouring Botswana, Lesotho, Zimbabwe, Swaziland, Namibia and Mozambique, as well as countries outside of Africa.

Global trends show that food prices will decline next year, leaving South Africa's farmers little room to pass on increased costs to the consumer, said Abdolreza Abbassian, secretary of the Intergovernmental Group on Grains Trade and Markets Division at the Food and Agriculture Organisation (FAO) in Rome. "The vulnerability of farmers will be increased."
Farmers want relief

Farmers have asked the government to provide relief by exempting them from a tax on diesel, used to fund monetary assistance to victims of road accidents. "Farmers don't use roads a lot - they do most of their commuting on farm roads," said Hawkins.

Grain SA has urged the government to spend more on agricultural research and to set up drought insurance schemes. "We are not asking for any input subsidy, but they could perhaps subsidise the premiums."

South African maize exports dipped to 529,000 mt during a severe drought in 2007, the lowest in a decade, when the country had to import more than a million tonnes.

Hawkins said projections for the 2008 harvest season, which lasts from May 2008 to April 2009 in South Africa, were positive, and exports were expected to cross the million-tonne mark. Final crop estimates put production at more than 12 million mt for 2008/09, five million mt more than in the 2007/08 season.

Lulu Xingwana, Minister of Agriculture and Land Affairs, recently told parliament that the government would intensify programmes to increase production of wheat, maize, soya and milk.

Although the total contribution of agriculture to the economy has risen from more than US$3 billion in 2001 to over $4 billion in 2007, she acknowledged that investment in the sector had not kept up.

However, she noted that the Agricultural Research Council had made some progress in identifying wheat breeding lines resistant to stem rust virus infection, and resistant to drought. "This is a step in the right direction towards ensuring wheat production and food availability, which in turn could mean lower bread prices."

IRIN 

The Southern African Development Community (SADC) has announced it will go ahead with plans to set up a regional grain reserve, while urging member states not to impose export restrictions on maize as the region grapples with high food prices.

"The recently held Integrated Committee of Ministers Meeting in Manzini, Swaziland, urged member states to remove restrictions – in fact, we have urged countries with surplus maize to sell their produce within the region," said Margaret Nyirenda, head of the SADC's Food, Agriculture and Natural Resources Directorate. "But at the end of the day it is a commercial decision - we can only advise member states to prioritise the region."

Malawi, Tanzania and Zambia all have imposed export restrictions and many other countries still have high import tariffs on maize. "These measures impede grain flowing from surplus to deficit areas within the region," said Thom Jayne, who teaches agricultural economics at Michigan State University (MSU) in the US.

"It is a travesty that 95 percent of all the grain imported by countries in sub-Saharan Africa is grown by farmers on other continents; only five percent of this grain comes from exports by neighbouring countries. This unfortunate situation is reinforced by a "beggar thy neighbour" approach to trade within the region," he said.

As an example of what regional trade can achieve, Jayne pointed out that in January 2005, "Kenya dropped its import tariff on maize from Uganda and Tanzania as part of the East African Commission trade agreement. There has been a notable improvement in maize price stability since that time." 

Unrestricted cross-border movement of goods is on the cards: the SADC launched its free trade area on 17 August, in which 85 percent of goods produced and sold within the region will be exempt from customs duties.

This would apply to agricultural goods as well, said Boitumelo Gofhamodimo, acting head of the SADC's Trade, Industry and Finance Investment Directorate.

Regional food reserve

In a significant move, the SADC has revived plans to launch a strategic grain reserve to help bail out countries experiencing food shortages, as part of a pre-emptive strategy to minimise the impact of natural disasters on food security.
"The plans are now at an advanced stage and have received support because of the current global food crisis," said Nyirenda.

Various models of the proposed facility are being negotiated; the strongest contender is based on the Association of Southeast Asian Nations (ASEAN) Emergency Rice Reserve, established in the late 1970s.

In the Southern African model a 500,000 metric tonne facility, including a cash component for countries that do not have any surplus to contribute, would be set up. About 75 percent of the reserve will comprise food in kind, while the remaining 25 percent will be in the form of cash.

"The reserve, which will include a combination of cereals, will be kept in several selected countries to provide easy access around the region," said Nyirenda. The reserve is to be run by a board, and officials hope to get the facility operational by mid-2009.

Cross-border bilateral initiatives

Three SADC countries - Mauritius, Madagascar and Mozambique - have established a regional food company funded by the World Bank's Global Food Crisis Response Facility. Under this initiative, Mauritius and Madagascar, which have limited agricultural land, plan to grow food in Mozambique.

"We support such bilateral initiatives to boost food security, but we are concerned in instances where land is being leased or purchased for biofuel production at the expense of food production," said Nyirenda. "We are busy formulating a regional policy on biofuel."

IRIN