Disclaimer: The purpose of this service is to collate relevant information on regional integration and trade already in the public domain and to distribute it to a targeted audience. The views expressed in these articles do not necessarily reflect the views of TradeMark Southern Africa or its sponsors, clients and partners. TradeMark Southern Africa is also not responsible for any errors of fact contained in the articles.

Plans launched for strategic grain reserves to serve EA

Nairobi:  Regional farmers hard hit by low return on investment due to price volatility and inefficient market systems are planning for a common strategic grain reserve (SGR) to help curb the situation that threatens to worsen food insecurity in East Africa. 'We are looking up to having a strategic grain reserve for the region so that we can have stable trading platforms that allow for planning and proper price setting based on the fundamentals of demand and supply,' East African Farmers Federation (EAFF) president Phillip Kirori said.

'Besides ensuring farmers get adequate compensation for their investment, such a scheme would also boost food security by ensuring we have constant supplies in the stores.'

Modalities on the creation of an SGR are still under discussion between the federation and the East African Community (EAC) secretariat even though the proposals are expected to feature at an upcoming regional Heads of State meeting on food security and climate change scheduled for Arusha next month.

Consumers in East Africa rely on cross-border shipments of key commodities from high supply to deficit locations. Recent studies, however, revealed lethargy among agricultural producers in East Africa thanks to relentless poor earnings despite sharp rallies in the prices of key food items world-wide.

An assessment by the European Union (EU), for instance, revealed that food commodity dealers in East Africa are losing up to 80 per cent of their earnings due to high transaction costs and post-harvest losses.

'Due to low market transparency and inadequate market information systems, the cost of trade currently is estimated to account for as much as 15 per cent of the price of the traded food,' the EU’s Centre for Technical Cooperation (CTA) which handles development issues with the African Caribbean and Pacific (ACP) bloc said in a brief.

'Some farmers that are able to sell surplus harvest only receive 10 to 20 per cent of the price of their produce because of excessive transaction costs and post-harvest losses.'

This low returns situation leaves most producers disillusioned, thus compromising the region’s overall development as well as food security.

International group Montpellier Panel, supported by the Bill and Melinda Gates Foundation, supports the creation of such strategic grain reserves saying the move could help boost growth in food deficit nations in Africa and urged key donors to shift their current strategies on aid provision.

The experts said lack of specific intervention measures on bolstering food reserves exposes millions of people in Africa to suffering despite huge fortunes pledged in aid each year.

'We want to see European donors pay closer attention to immediate threats to food security, while simultaneously increasing support for African-led efforts that for the first time in generations show that the governments are determined to literally grow their way towards health and prosperity,' said Sir Gordon Conway of Imperial College London, who chaired a Montpellier panel in London last month.

The group pointed out that a system of grain reserves could prevent another round of price shocks to commodities markets from spreading malnutrition to millions more Africans, as they did in 2007 and 2008.

'Today, European aid to Africa can be especially productive because it can support emerging strategies already owned, operated and driven by Africans, which is a relatively novel situation in the history of European-African relations,' Lindiwe Majele Sibanda, CEO and head of diplomatic mission, Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN) said.

Kenya is among African states that have made major strides towards the creation of SGR to try and stabilise pricing of key products such as maize. The SGR is currently managed by the National Cereals and Produce Board (NCBP). 'Where we are directly supporting smallholder farmers, we are seeing increased yields and profitable farms; we are seeing this success in pockets all across Africa.

What is critical now is for focused investments so we can replicate this success on a large scale and truly revolutionise African agriculture,' said Namanga Ngongi, President of the Alliance for a Green Revolution in Africa (Agra) and a member of the Montpellier Panel.

The concerns over low returns for growers in the region and Africa as a whole came as new forecasts showed that international food import bills could pass the $1 trillion mark this year with prices in most commodities up sharply from 2009.

In the latest edition of its food outlook report, the UN’s Food and Agriculture Organisation (FAO) has issued a warning to the international community to prepare for hard times ahead unless production of major food crops increases significantly in 2011.

Food import bills for the world’s poorest countries are predicted to rise 11 per cent in 2010. This means, by passing a $1 trillion, the global import food bill will likely rise to a level not seen since food prices peaked at record levels in 2008.

'With the pressure on world prices of most commodities not abating, the international community must remain vigilant against further supply shocks in 2011,' the agency said. Contrary to earlier predictions, world cereal production is forecast to contract by two per cent rather than expand by 1.2 per cent as anticipated in June. Unexpected supply shortfalls due to unfavourable weather conditions are responsible for this change in direction, according to the report.

Global cereal stocks are forecast to decline sharply — putting pressure on farmers to step-up production and replenish inventories. World cereals stocks are anticipated to shrink by seven per cent, according to FAO, with barley plunging 35 per cent, maize 12 per cent and wheat 10 per cent. Only rice reserves are foreseen to increase, by six per cent, according to the report.

'Given the expectation of falling global inventories, the size of next year’s crops will be critical in setting the tone for stability in international markets,' FAO said.

'For major cereals, production must expand substantially to meet utilisation and to reconstitute world reserves, and farmers are likely to respond to the prevailing prices by expanding planting.

The agency said that cereals may not be the only crops farmers will be trying to raise production as rising prices have also made other commodities such as soybeans, sugar and cotton attractive to grow.

'This could limit individual crop production responses to levels that would be insufficient to alleviate market tightness. Against this backdrop, consumers may have little choice but to pay higher prices for their food,' FAO warns

The Alliance for Commodity Trade in Eastern and Southern Africa (Actesa) CEO Cris Muyunda said market blocs such as the Common Market for Eastern and Southern Africa (Comesa) were yet to be exploited by farmers. He called for interventions that would allow farmers to take advantage of such markets.

He said some $20 billion worth of food is imported into Comesa every year against the bloc’s intra-trade value of $15 billion. Of the intra-trade value, only $3 billion comprises agricultural products including tea, horticulture, tobacco and coffee.

'This clearly shows that we have a huge homework to do. Trade in terms of staple food is too low despite the huge potential that lies untapped,' Dr Muyunda told a regional forum on agriculture in Entebbe last week.

Poor road infrastructure remains a major challenge for rural economies in East Africa that are dominated by peasant farmers who mainly engage in the production of staple foods such as maize. Lack of sound marketing and commodity handling systems also stands as an impediment to commodity dealership in the region.

Kenya has, for instance, borne the brunt of poor commodity handling systems such as that witnessed early this year when the country lost about 30 per cent of its national maize stocks to Aflatoxin.

'Despite the importance of broad based economic growth, there is drastic need for better markets improved infrastructure and supply chains,' Ian Goggin, a trade specialist with US Aid told the Entebbe forum.

26 November 2010
Business Daily Africa
Get the latest news:
Twitter Follow this News Feed on Twitter

Facebook Receive this News Feed in your inbox

RSS Subscribe to this News Feed on RSS


Early Closure of TMSA Programme: The Secretary of State of the UK’s Department for International Development (DFID) has decided to terminate its financial contribution to TradeMark Southern Africa (TMSA), as announced on 4 December 2013. As DFID is the sole financier of the TMSA programme of support to the COMESA-EAC-SADC Tripartite, TMSA will officially be closed from 17 March 2014 instead of 31 October 2014. For more information about the TMSA closure, and for a summary of some of the more notable successes of the Tripartite achieved with TMSA support, please click here