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January 12, 2011

Africa can ride out food price surge this time

by Ed Cropley

The United Nations may have sounded the alarm about soaring global food prices, but in Africa a string of bumper harvests and a changing diet means the political fallout may be more muted than to past price bumps.

On the financial side, a little bit of inflation will help push up domestic debt yields in the region's frontier markets, making bonds more attractive to foreigners and thereby giving currencies a boost.

But in contrast to the Food and Agriculture Organisation's global food index hitting 2008 crisis levels last week, maize, Africa's predominant staple, is showing few signs of stress, suggesting a repeat of the unrest of two years ago on the continent is unlikely.

South Africa, its biggest economy and maize grower, has just harvested its heaviest crop in 30 years and maize prices are 1,281 rand/tonne -- 22 percent above a 2010 low but only just over half a record 2008 high of 2,240 rand.

The supply story is much the same in many other states in Africa, where food makes up a much larger chunk of the average inflation basket than developed countries, making their economies far more susceptible to food supply crunches.

A five-year fertilizer subsidy programme has caused steadily rising crops in Malawi, which had a surplus of nearly 1 million tonnes in August compared to consumption of 2.5 million.

Zambia had a maize export surplus of 1.1 million tonnes in November after its second record harvest in two years, based on good rains and growing investment in the farming sector.

Even Niger, which needed $250 million in food aid last year to help feed 10 million hungry people, said last week favourable weather had put it on course for its best cereal crop in 20 years, with a forecast surplus of 1.5 million tonnes.

"In most of the countries, we're not seeing any meaningful food inflation. It's trickled higher in Kenya, but if you look at the other countries, it hasn't really moved materially," said Leon Myburgh, an Africa economist at Citi in Johannesburg.

Given Africa's huge diversity, its 53 countries and its propensity to snatch unrest from the jaws of stability, it is too much to say, however, that it is insulated from the political risks implied by the rising global cost of food.

Food price riots hit Algeria last week, and in September, 13 people were killed in street fighting in Mozambique after the government hiked bread prices 30 percent by axing subsidies it could no longer afford in the wake of a wheat price spike.

But in Kenya, which saw inflation rise to 4.5 percent in December from 3.8 percent a month earlier amid fungal damage to its wheat crop, the chances of political fallout are diminished by the country's changing diet since the 2008 shock.

According to agriculture officials, eating habits have shifted from traditional maize and wheat to include more rice, potatoes and local vegetables such as amaranth. Potatoes are now Kenya's second-most popular foodstuff.


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