Thursday, May 1, 2008

Could the surge in commodity prices be a panacea for Africa?

Farming in Africa has always been a risky business, often at the mercy of bad weather, drought, low productivity, bad politics and non-remunerative fluctuating farm product prices. Consequently, Africa has long been confined to exporting primary commodities which faced volatile prices and unfavourable terms of trade. However, the recent surge in commodity prices could be changing the face of commodity trade and its fundamentals. The rise in prices of several commodities produced in Sub Saharan Africa is predicted to continue for the far future. For instance, food crop prices have increased globally by more than 85 percent since 2004 and they are predicted to remain above 2004 levels until 2015. This should be good and not bad news for African households and policy makers. It’s the right moment to prioritise modernisation of agriculture as a tool to fight poverty and achieve the millennium development goals by 2015 by taking advantage of the global price incentives to boost household incomes. The food price increases has been predicted as doom and gloom for the continent. However, this needs not to be the case, because there are benefits to reap in the medium and long term for African producers. 48 out of 53 African countries are dependent on commodity exports, including primary agricultural products, minerals and oil products to earn foreign exchange. The recent price boom has affected all these commodities. Africa is a natural basket of most these commodities and enjoys an absolute advantage on their supply.
Most specifically, the food related commodity price increases are attracting alot of global attention. The World Bank warns of more than 100m people, mainly in Sub Saharan Africa, that could be severely affected and plunged deeper into poverty. The Bank president has called for a “new deal for global food policy” to the tune of US$ 500m to support the World Food Programme. In Uganda, where most households are net food producers, the country could benefit greatly from the high food prices through regional food exports.
Oil prices are also booming, a major commodity now widely produced in Africa. Africa contributes 15 % percent of United States (US) energy requirements and is also major supplier to China. This ensures a wind fall of oil revenues to the continent especially to major African producers like Nigeria, Angola, and Equatorial Guinea, Sudan, Chad, Gabon, Cameroon, DRC, Gambia, Libya and soon Uganda. Investing these revenues wisely in education, health, and other sectors of the economy and upgrading of the continent’s physical infrastructure could turn the plight of the continent upwards forever.
A rise in global bio-fuels` production (fuel from crops like sugarcane, maize, soybeans and palm oil) especially in US, Europe and Brazil is another opportunity for Africa. With vast unutilised agricultural land, Africa can grow and cheaply supply bio-fuel crops compared to subsidized and expensive sources in US and Europe. The global drive against climate change and need for energy security will continue to make bio-fuel production a potential source of hope for poverty reduction in Africa if international and national policy makers seize this opportunity. A country like Uganda could be global supplier of grains both for food and bio-fuels under these price incentives.
China and India (the Asian Drivers) are rapidly industrialising and they need metals and ores for their hungry and thirsty construction and manufacturing sectors. The demand for metal ores in China will continue to push the prices for these commodities higher and higher.higher . The changing diets of middle income China and India will contrive to elevate food prices of protein related product likeproductslike milk, meat, pork and eggs in the long run. China’s GDP growth has averaged more than 9 percent since 1995 and makes up to 15.4 percent of the world economy. The country also consumes a third of the world’s iron ore, coal and steel, it is the world largest importer of copper and aluminium and the second largest importer of oil behind the US. Coupled with continued percapita income growth, change in diets, the “Asian drivers”, will lead to both a strong rise in demand for food and mineral commodities and sustain the high prices in long term. China and India also account for 40 percent of world commodity consumers and 20 percent of global purchasing power and their consumption power is predicted to more than double by 2020. All this presents enormous opportunities for Africa’s household commodity producers in form of increased farm incomes once strategically tapped. Its time to revive the Kilembe copper mines among others for Uganda.
The conclusion of the Doha Development Agenda in Geneva presents a tremendous opportunity. World Trade negotiators in Geneva are about to conclude a development trade round which was launched in 2001 in Doha Qatar, which could see shifts in agricultural subsidies in rich countries and reduction in import tariffs in the advanced economies. This could lead to a rise in prices for certain commodities, like cotton and sugar hence increasing income opportunities for commodity dependent developing countries like Uganda Benin, Mali and Burkina Faso for the case of cotton.
In final analysis there is plenty of opportunity for Sub Saharan Africa to turn around its “development puzzle” and get out of poverty by 2015. A country like Uganda can focus on becoming a food basket for the region; refocus its Poverty Eradication and Action Plan. Organise farm households into small plot intensive farming (SPIN-farming) to produce economically viable commodities. For instance, clusters like North Busiro Development Foundation of Prof. Gilbert Bukenya`s upland rice is a venture in the right direction. Also “Boona Bagagawale” and other poverty eradication programs should prioritise agriculture to produce strategic commodities that are going to be in high demand locally and globally, now and in the future rather than cash transfers to households or increasing food aid.

12 comments:

Denise said...

Among the factors mentioned in this article that have made farming a risky business in Africa, I think bad politics is the most influencing factor. I don't think the weather in Africa is worse than other continents in the world, I think that what we lack in Africa is forecast technology/services that can guide the farmers on on planning when to do their activities. Farmers in Africa also need disaster recovery mechanism that can help to save some crops in case of droughts or other weather and seasonal disasters.

The figures shown in the article about the increase in crop prices are really alarming....and of course the effect is visible around us and we feel it as consumers.

Later in the article, it is said that Africa can exploit its vast unutilised agricultural land to grow bio-fuel crops. How about Africa utilizing that land to grow the crops to feed Africans first? I understand that bio-fuel crops will have price incentives. But I am wondering if the crops pricing cannot be regulated within Africa?

I agree with what the last paragraph of the article says and I believe that good/appropriate politics and good/appropriate organisation underpins the development or advancement in any domain. Now the question is; what is good/appropriate politics and organization as far as farming is concerned in Africa?

Rwakakamba Morrison said...

Climate Change and its terror adjuncts are a formidable threat to farmers in Uganda

Prolonged droughts, acute water shortages and poor and erratic rains that have hit Uganda both in the past and presently have not only left many in the country-side hungrier and poorer but have largely contributed to the overall slow down in economic growth from 6.6% to less than 5%. For starters, Eastern and Northern Uganda experienced heavy rains during the three months of July, August and September 2007 that resulted in severe floods in many locations, this trend has continued to manifest its self as early as March 2008 in east and central regions of Uganda. At the height of the floods in September 2007, many rivers burst their banks and could not be crossed on foot, some bridges were washed away and roads became impassable. In the worst affected areas some schools, health centres, homes and other infrastructures were destroyed or badly damaged and many families were displaced and forced to seek shelter in school buildings on higher ground. As a result, Food balance sheets for Amuria and Katakwi for the period July 2007 to June 2008 indicate that Amuria would have a deficit of 16 419 tones of cereals, 27 743 tonnes of roots and tubers while Katakwi would have a cereal deficit of around 3 315 tones but small surpluses in roots and tubers and pulses. This also has a bearing on the protruding global agricultural prices.

The above, coupled with an apparent decline in the water resources and the consequent food insecurity and decline in economic growth is a testimony that environmental conservation today is no longer a question of beauty but a question of economic survival of both individual farmer households and the nation at large– indeed poverty is so much a cause and a consequence of environmental degradation. With every wetland encroached on, swamp drained, top soils eroded, rivers drying up and lakes shrinking, the water table continues to go down and desertification becomes a reality in Uganda. Uganda’s small rivers that feed in the international water bodies like the great River Nile and Lake Victoria are facing extinct. The most visible is River Nyamwamba in Kasese, River Rwizi in Mbarara and River Mporogoma in Eastern Uganda. The culprits and victims for this environmental catastrophe are largely the farmers who interact with the environment on a daily basis. Yet if educated and given capacity, farmers can be the best protectors and custodians of environment.
Yet Uganda has a number of laws and policies geared at conserving and protecting her environment. From the Constitution, the Poverty Eradication Action Plan (PEAP), the National Environment Management Act (NEMA), the national Land/Land Use Policy, the National Wetlands Policy (NWP) and the Water for Production Strategy, among others.

What then explains the continued environmental catastrophe in Uganda? The problem lies in implementation malnourishments. Laws and policies merely exist on paper with palpable limitations in enforcement and implementation. At the Uganda National Farmers Federation we contend that, much as Uganda is one of the few countries in Africa to posses what looks like a supportive legal framework and policy regime on environmental protection, her natural resources continue to dwindle and deplete daily at an alarming rate and as a result, the country stands at the brink of a severe food, environmental and deepening water catastrophe and the subsequent related conflicts. In all this equation it the poorest that suffer. In Uganda when we talk of the poorest we mean farmers. Farmers in Uganda need capacity in terms of knowledge and resources to confront climate change adjuncts. It not until then that farmer’s commitment to feed the world can be pulled to fruition.

We at Uganda National Farmers Federation in partnership with all those actors that wish farmers well call for, is effective implementation and monitoring and evaluation of existing policies and laws without fear or favor, sensitization of farmers on conservation and restoration of environmental resources and promotion of sustainable natural resources management in agriculture. We also call for meticulous review of the existing environmental policy regime in Uganda with the view of tailoring, customizing, localizing and genderizing it for practical purposes. With the changing climate at a time when farmers still depend on nature mercies and goodwill farmers options for productivity enhancement seem to dwindle. Unless farmers adopt technologies that accommodate climate change, unless farmers learn to adapt to the changing climate, farmers in Uganda and Africa generally will perish. To the farmers and governments I say- Adopt Adapt or Perish!!!!!!!!!


Morrison Rwakakamba
Resident Consultant and Manager for Policy Research and Advocacy.
Uganda National Farmers Federation
rwakakamba@yahoo.co.uk
+256-712-070181

Rwakakamba Morrison said...

I agree with your missive in many waysMr. Dick Kamuganga. For me the issue is on wether Africa is ready and positioned to grab the opportunity (surging global food prices)?!!! In many ways, its no. The supply side is bleeding and little is being done to mitigate the constraints. In Uganda productivity continues to dwindle as population assumes world record unprecedented surge. You would think, that such increase in number of mouths to feed would translate into increased production, but wa. Also in the center of fevourable global prices, one shd see says law of economics taking charge ( demand inducing supply), this is not happening. Why? I tend to agree with so many others that the problem is bad politics and evident policy failure. In Uganda, anti poverty programs are largely political sologans. They are invented to dupe the the population for votes. If the politicians are honest, then this would be refelected in the budget allocations to the agriculture sector, it would also be reflected deliberate input and taxation incentives. You and me know that agriculture gets the least (a paltry of 4% of the national budget!)
It is also sad to note that only 14% of farmers in Uganda atleast applied some technology on thier farms. For me, governments of Africa must priotize agriculture- as a strategic flagship sector. It is in agricluture and may be tourism where we have reasonable comperative and competitive advantage. Focus should be put on susbstantive capitalisation of agriculture and a farmer centered policy regime.Then we can position our selves to reap from global opportunities. You might want to know that currently, food insecurity is on increase. 38% of Ugandans are food insecure. I havenot looked at continental statistics. I am sure, the trend is the same. Did u know that Uganda imports rice from Pakistan!!!!

Finally, farmers can only benefit from this price boom, only if prices of basic commodity prices remain stable. At a time when soap, sugar, salt etc prices continue to double, the seemingly disposible resources of farmer households will swallowed in plummeting basic consumer commodity prices!

Morrison

Anonymous said...

i agree with you Kamuganga on the fact that surging world food prices present opportunities for African growth!!

However, i would like to take a look at what has kept farm prices and incomes "criminally" low. while you mention that the infrastructure is in shambles, sadly you don't expound on the fact that this price surge has found us totally unprepared!!!! And that it will exist for long, we don't know how long...to enable us right our wrongs.
So i can comfortably say that it may be MELESSE ZENAWI to gain(in the short and long terms) from this surge. Our predatory governments do not have the shame to try and fix the necessary infrastructure to reap from the surge. Mr M7 stops at welcoming the good tidings.
Look at Milk, expensive in Kampala, and the corresponding farm price?? Disheartening!!!!

secondly, despite the surging prices, a sick population will NOT go back to the farms. HIV and Malaria are surging too. This is because those that couldnt till the land left for the townships and there is complacency in the ABC strategy! Take a stroll through the regional hospitals, health centres the situation is humbling.Did i mention that ARVs expire on shelves in govt stores, and/or are stolen by ministers!

So DIck i could go on and on about a sick populace, but next time you sre in Kampala remember the dinner you having was from a frail HIV + woman down in the farm.

The above situation can be replicated with minor variaations in many African countries including those African Oil giants you mentioned!!

The case of bio-fuels is humblimg! Corn for feeding cars??. The extensive farming for this purpose makes geometrical demands on the soil nutrients makes the struggle for a greener world that would produce more food, vain. In Asia they have cut the forests to grow palm oil...and the climate is fast changing. This helps to increase the prices further. First it was the 2 dollar-subsidy cow now its the car!!!
Mr Rwakakamba has done justice to the unpreparedness of our farms to face vagaries of weather in face of these prices
Birungi David

Anonymous said...

You are inviting us to be positive and to think about advantages we can take on the increase in the crop prices. I like the idea: for once, someone is trying to think about opportunities african can size. Great. Meanwhile, I take your article as a first step: I am also waiting for concrete suggestions: governments involvment? how african countries can better negociate commodity prices on international level? what about technology (good and efficient technology is necessary for production growth)??
i am waiting for a second article.
Satou

Unknown said...

Mr. Kamuganga

I agree with you that rising food prices is good for african farmers however another issue is what about the urban poor with no gardens and live on less than a dollar a day?

Anonymous said...

Dick,

While i agree with you that the surge in commodity prices could be a panacea for Africa am very reluctant to rise my expectations for one reason "BAD POLITICS"

If you ask me, Africa did not need to wait for almost 6 decades after the so called independence from our white brothers (who ofcourse did more harm than good to Africa)for such an opportunity, but bad politics makes us jump on an thing whether sustainable or no!!!t!

because i believe the surge is short term for Buffer stocks will soon catch up!

The issue with Africa is nothing else but BAD POLITICS, if i could quota some examples

Not very long ago Danida offered to serve every primary child in Uganda a ltr of milk daily! when policitians (including the bigger guys) learnt of this they pushed for personal gains and danida cancelled the project!!!!!
if such a project materialised i believe it would have been an opportnty for Ugandan farmers because not only would it have provided costant dd but steady and competitive prices, who knows may be ugandans would not have sustained the demand and as such there would have been a need for an importation from the rest of african countries, for me such are the real opportunities which are clear but Bad politics guys!!!!!!!!

Every one saw or heard what happened in Kenya early this year, and the entire east africa got affected and up now the ugnadans and east africans are still paying a heavy price!!! we all know whats going on in Zimbabwe!!!!

So for me Mr Kamuganga if you want a real panacea for Africa dont tell about a surge in commodity prices for i know our white brothers will soon close this window because they have always played dirty!!!
Tell me about a surge to get rid of bad Politics and politicians of Africa, if that happens then Africa will be very close to becoming " a healed child of the world".

Its high time guys evryone young or old started to demand real accountability for our resources in Africa, if we cant recover those already stolen (by both whites and bad african politicians) at least we need to protect what is left and this i beleive we can!!!!!!!!!!!!!!!!!!!!

its a pity that an african in the 21 c still lives on a lonely island of poverty in the midst of a vast ocean of opportunities!!

The problem with our generation of Africans is that we fear to confront bad politician like our legends did!!!!! and as such i would like to conclude my reactions with a with a favorite quotation often wrongly attributed to Nelson Madiba Mandela but is actually by Marriane Williamson and I quote;

“Our deepest fear is not that we are inadequate. Our deepest fear is that we are powerful beyond measure. It is our light not our darkness that most frightens us. We ask ourselves who am I to be brilliant, gorgeous, talented, fabulous? Actually who are you not to be? You are a child of God. Your playing small does not serve the world. There is nothing enlightened about shrinking so that other people won’t feel insecure around you. We are all meant to shine as children do. We were born to make manifest the glory of God that is within us. It is not just in some of us; it is in everyone. And as we let our own light shine, we unconsciously give other people permission to do the same. As we are liberated from our own fear, our presence automatically liberates others”. Marianne Williamson.

Anonymous said...

http://www.iies.su.se/~masa/tips4economists.htm

Hannah_Savannah said...

Hey mr. Kamuganga!

I think it's really amazing that you posted this articl in the Uganda newspaper. And I really, really think you should keep up this professional blog. I promise to read it, spread the word and leave comments!!

Many greetings from belgium,
Hannah

Anonymous said...

My friend Dick and others - the rising cost of food has generated a lot of anxiety worldwide but for totally different reasons. According to ABC news, Americans are more concerned with the likely loss of their waistlines as they turn to cheaper junk food in place of the healthier but more costly organic food. In Haiti, hungry Haitians (who obviously do not have the junk food option) turned into a violent protest demanding for the resignation of their president. In Uganda, the local media has been filled with a heated debate as to whether the rising prices are a ‘dream come true’ for our long-suffering peasant farmers. Recently, the president advised farmers to take advantage of the higher prices and make a ‘quick kill’. And indeed, Dr. Suruma has rejected pleas by Parliamentarians to fix food prices. Overall, there seems to be a consensus among politicians and some economists that higher food prices will benefit Ugandan farmers. However, I have not seen any substantive evidence in support of this argument. But rather, it seems to be emerging out of sheer hysteria, politicking and simple textbook economics that is more general than contextual. In the end, however, the most significant message is simply a confirmation of the lack of a research-based policy process that has come to be associated with this government. Like Milton Friedman famously observed, when a crisis occurs, the actions taken in response depend on the ideas lying around. And in Uganda's case, the ideas are always generated from the famous Kampala club - not in research centers! My take on this is that whereas the rising food prices could potentially increase Ugandan farmers’ incomes and hence welfare, there is no reason to believe that they actually will. But more importantly, the president and his government should be more concerned about the likely welfare impacts on all Ugandans and not just farmers. Let us examine these two issues in greater detail.
First, we ought to appreciate that higher food prices have fundamentally different impacts on different countries and population groups. At an aggregate level, net food exporting countries including Uganda are expected to benefit from improved terms of trade following a rise in the world market food prices. But the implicit assumption here is that the food commodities in question have positive and significant price elasticities of supply. In other words, farmers will respond to these price increases by supplying more food. Therefore, the pertinent question here is: Is this the case for Uganda’s food supply? My answer is a resounding NO! Recall that most of the market-oriented policy reforms that have been undertaken by the current government over the last fifteen years including trade liberalization have aimed to increase real food prices (which were previously kept artificially low by marketing boards and subsidies) as a means to improving farmers’ incomes and welfare. But for the most part, prices have become increasingly volatile. Although food production has increased over the last decade, I believe that this has been due to an increase in population rather than prices. To think that higher food prices will lead to an increase in supply is to be oblivious to the obvious supply side constraints such as poor infrastructure, and biological stresses like crop pests and diseases, which constrain Ugandan agriculture. Moreover, it is likely that the volatility in food prices created by the government’s market reforms has made farmers more risk-averse, hence less responsive to short-term price incentives. The president and his advisers ought to know that ensuring price stability leading to reduced income variability is far more important to improving agricultural production and hence welfare than relying on an unpredicted price increases.
Second, we should not be misled by the standard market assumption of perfect information, because certainly there is not perfect information in Uganda’s food market. This is not the first time that food prices have gone up, although previous increases were not as dramatic. However, it is the middlemen that have consistently reaped the extra profits. Why? Because farmers are always told that the increase in prices is due to an increase in fuel costs and marketing taxes even when it is due to a genuine increase in consumer demand. For instance, the current price increases have been predicted to be long-term. But do farmers know that? The government is well aware that farmers have been perpetually cheated by middlemen but has not made any substantial interventions. Support to projects disseminating market information has been mediocre. Calls to fix minimum prices for certain crucially important commodities have fallen on deaf ears. I have totally failed to comprehend the government’s refusal to regulate and institutionalize the agricultural sector. It is sheer commonsense that agriculture is a unique industry. You cannot make milk from malt! Neither can you make honey from sorghum! The point here is that agricultural production should not be left “to whom it may concern” because it does not exhibit the sort of flexibility in factor substitution that is found in other industries. All developed economies continue to strongly regulate and support their agricultural sectors. And while the president is busy calling on his peasants to increase output, I dare him to tell them by how much they should increase it! Here in Canada, they have already figured out exactly how much to produce next season for domestic consumption and export – thanks to their supply management approach to agricultural production.
Third, the effect of a price increase on welfare also depends on the source of the increase. If price changes are largely due to domestic macroeconomic reforms that are deeply rooted in the need for income redistribution, then you can expect the effect of price changes on welfare to be augmented by simultaneous changes in other variables, thus ensuring sustainable development. However, if price changes are due to changes in global market conditions, the effect on welfare may not be significant especially for poor countries like Uganda, which do not have the infrastructure and right policy mix necessary to claim their ‘share of the cake’.
Fourth, a good proportion of farming households is increasingly turning to the market as a source of food security. After all, is it not their very government telling them to achieve household food security through the market rather than household self-sufficiency? This implies that a surge in food prices will cause a decline in their real incomes or that real income gains will accrue to large farmers producing a marketable surplus.
Last but not least, I suggest that before the government takes a position on the rising food prices, it is also imperative to take into account the net welfare effects on the entire economy rather than on the rural economy alone. A few years ago, a study in Kampala revealed that on average, household monthly food expenditures were as high as sixty percent of household monthly income. Thus higher food prices given a constant income are likely to distress many urban households. Welfare economists will point out that it is possible to make one section of the population better off without necessarily disadvantaging another. I believe this is what the government should strive to achieve.
In sum therefore, my point is simple and straight-forward: the government’s position on rising food prices should be based on evidence from thorough empirical research rather than on ideology and age-old simplistic economic theories.

Anonymous said...

Hullo Dick, what an educative blog that draws attention to the plight of many voiceless African farmers! However, although I agree with you on so many issues discussed in your article, it is imperative that the surging corruption with in the government and the un necessary bureacracy involved in marketing the farmers' produce are worth mentioning. Unless the above are tackled, then I believe the struggle continues for poor African farmers who toil hard but with no or little returns. Naome, London.

Unknown said...

How are u man?
Great!, what i can I can put foward for you my brother is the issue of human capital. Taking a swipe at the Ugandan case and indeed our Africa at large, you will with shame realise that the youth has hardly contributed to the betterment of Africa's traditional earning engine( agriculture).
Our greatest number has taken surge into looking for white color jobs and neither have they practically gone back home to do a better job in supplimenting their iliterate parents or even traded in the agricultural produce. I do even forecast that as modernity continues to be percieved as doing less dirtier-manual work in the African setting, it will be an untainable dream to curb poverty and increase household income.
To wrap it up African governments need to redirect their efforts towards encrouging the elite youth to support all chains that will modernise agriculture.