Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN) Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN)

Soaring food prices and Africa's vulnerability and responses: An Update
Working Paper Series
July 2009

Acknowledgements: FANRPAN acknowledges The African Development Bank (AfDB) as the source of this document:

The recent episode of high food prices was more severe than previous ones and its impact is expected to persist over the short-to-medium term. The sharp increases in food prices from the last quarter of 2007 to early 2008 triggered various reactions around the world, including Africa, and raised grave concerns about food security in the Bank’s Regional Member Countries (RMCs). Since these developments, some changes have occurred on global cereal markets. From June 2008 to January 2009, international market prices for most cereals, whose prices had risen the most (maize, barley, wheat and rice), have fallen. This fall was uneven and more pronounced for barley (traded at December 2006 price in January 2009) than for rice (still twice more expensive in January 2009 than in December 2006) (IMF, 2008). Furthermore, the actual picture in African countries remains mixed, as the fall in cereal prices observed on global markets does not seem to be reflected on a uniform fall in cereal prices in all African countries.

These developments are of particular concern as cereals and tuber crops (notably cassava) constitute about 55% of the household’s food basket (African Development Bank, 2008). Over the years, growth in cereals consumption in Africa outpaced production due to several reasons, including inadequate policy environment and poor incentives in the agricultural sector, weak capacity and inadequate investment flows, and climate change. As a result, the continent is a net importer of cereals and dairy products. The FAO estimates Africa’s cereal import bill at about USD 21.748 billion in 2008 and about USD 9.8 billion in Sub-Saharan Africa in 2008, translating into 30% and 35% increase over the 2007 level, respectively. Generally, the high food prices hit developing countries harder, with these countries recording a 42% increase over 2007, compared to 19% for developed countries (IMF, 2008; FAO, 2008c). Low-Income Food-Deficit Countries (LIFDCs) are particularly under stress as they are also net importers of petroleum products and staple food. In its November 2008 issue of Food Outlook, the FAO estimated the total food import bill of the Low-Income Food-Deficit Countries (LIFDCs) rose by 32% in 2008 (to USD 117 billion) relatively to 2007.

In the absence of appropriate measures, rising food prices have the potential to roll back progress toward poverty reduction and the attainment of MDGs. Low-income households spend a significantly large proportion of their income on food. These figures are as high as 57% in Tanzania and 62.5% in Comoros, (African Development Bank Statistics, ICP database).

Recent food riots and demonstrations in Africa and elsewhere in the developing world underscored the gravity of the burden of high food prices on households. Some African countries responded through measures designed to either reduce prices and/or increase access to food (African Development Bank, 2008). However, these responses have implications on fiscal balances and balance of payments positions. It is against this background that criteria for determining relative country vulnerability were developed to guide Bank responses to the crisis. On the basis of this index, the Bank identified 27 RMCs as critically in need of food assistance, with another 12 requiring assistance (African Development Bank, 2008). Even though the situation has considerably evolved from what it was in mid-2008, the issues of food prices and food security, in particular, remain critical challenges for the continent.

The purpose of this paper is to provide a review of recent food price movements, describe the methodology that was used to assess the relative country vulnerability with the aim of helping Bank operations and RMCs design appropriate responses to the food crisis.

The paper constructs a vulnerability index using indicators that measure a country’s ability to pay for food imports, the degree of urbanization and import dependency. It is a static approach that makes it possible to assess a country’s vulnerability over a one-year period. This forms the basis for assessing the severity of the likely impact and formulating appropriate policy responses.

In the next section, a historical perspective of food price movements is presented. This is followed by an analysis of recent price increases and factors driving price movements. Section 2 takes a special look at trends and drivers of food prices at the global level and in Africa. The description of the vulnerability index is provided in Section 3, followed by an assessment of the relative vulnerability of African countries. Section 4 discusses the implications of food price increases and vulnerability. The African Development Bank’s response to the crisis and conclusions have been provided in Sections 5 and 6, respectively.

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