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Staple Food Prices Expected to Remain High in Response to Tighter Regional Supplies

  • Food Security Outlook
  • Southern Africa
  • July - December 2013
Staple Food Prices Expected to Remain High in Response to Tighter Regional Supplies

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  • Key Messages
  • Regional Overview
  • Events that Might Change the Outlook
  • Key Messages
    • Although most parts of the region will remain food secure during the July to September period, there are pockets of acute food insecurity in areas that experienced reduced harvests due to mid-season dry spells and or flooding. Food access in these areas is already problematic for some households, and the lean season is expected to begin earlier than the normal October/November start. 

    • From July through September, Stressed (IPC Phase 2) and Crisis (IPC Phase 3) outcomes are expected in localized parts of Zimbabwe and Malawi.  However, food security is expected to improve in affected areas of Zimbabwe during the October to December period due to the start of seasonal targeted assistance and other safety-net programming in deficit areas. 

    • Food prices in some of the region’s most productive areas continue to decrease or stabilize, following normal post-harvest seasonal trends. In deficit areas food prices are rising steeply even while harvests are still on-going, a pattern that is atypical for this time of the marketing year. 

    • The 2013 national vulnerability assessments findings released in July point to increased levels of food insecurity across the region. Most countries have recorded higher numbers of acutely food insecure populations and a much wider geographic distribution of affected areas compared to the past three years. Namibia has the highest level with 48 percent of its rural population assessed as requiring food assistance.


    Regional Overview
    Current Situation

    In July food security conditions remained favorable across the region due to increased food availability from harvesting that is soon coming to an end. Most rural households are accessing their food requirements either from their own production or through purchases at adequately stocked local markets.  Stable supplies in local markets are ensuring that market-dependent households have access to food, especially the poor households who do not normally produce enough to meet their food requirements.  In June, prices were generally stable and most monitored markets showed a continuation of the downward trend observed since the start of the harvest in April; while in other markets prices remained similar to May 2013 levels.  Across the region, price levels and trends are also being influenced by national export bans, procurement for the strategic grain reserves, and prevailing macroeconomic instability.

    Despite the overall favorable conditions, the region still has a number of areas where households are currently experiencing   or are projected to face acute food insecurity outcomes during the 2013/14 consumption season. These areas experienced reduced harvests in 2013 due to the late start of the season, flooding, persistent and prolonged mid-season dry spells, armyworm outbreaks, and early cessation of rains. Available information from Southern African Development Community (SADC) Member states indicates that the most affected areas include central and northern Malawi, the southern regions of Zimbabwe, southern parts of Angola, and most parts of Namibia. Staple food prices in some markets in the affected areas have risen to levels well above last year and the past five-year average. Prices have also increased in surplus areas in response to increased procurement levels by traders supplying deficit areas as well as those engaged in informal cross border exports. Higher than average prices suggests that poor market-dependent households in both deficit and surplus areas of affected countries may not be able to access enough food to meet their basic requirements.

    Regional Availability

    With the harvest information that is currently available, SADC estimates a marginal (three percent) increase in the regional cereal harvest of 33.72 million MT compared to last year’s total harvest of 32.81 million MT (Table 1).  This outcome is largely the result of the unfavorable cropping conditions experienced in a number of countries, including South Africa and Zambia; two of the major cereal producing countries. Although Tanzania (the region’s second largest cereal producer) has yet to conclude its harvest assessment, there is an indication that it will have an above average harvest this year. This positive estimate is providing a major boost to current regional supply projections. However, it is likely that the final regional estimate may be revised downwards once official estimates are received from all member States. 

    As usual, South Africa is expected to contribute approximately 42 percent of the region’s cereal harvest. Current estimates for South Africa indicate that this year’s maize harvest (12.07 million MT) for the 2013/14 marketing year will be six percent lower than the previous year. Since the initial forecast in February, this estimate has fallen approximately eight percent on account of yield reduction due to the prolonged dry spells in some of the high maize producing regions of the Free State and North West. Tanzania, Mozambique, Zambia, and Malawi are expected to contribute a combined 52 percent to regional cereal supplies, although nearly 48 percent of these supplies will be from Tanzania (based on initial crop forecasts). In the past five years, these four countries and South Africa have produced enough surplus maize to cover the region’s overall maize requirement. Although current projections indicate that the region will again meet its maize requirements in the 2013/14 consumption period, the surpluses are much lower this year.

    In June, Malawi issued the third round estimates suggesting a total maize crop of 3.64 million MT which is almost at par with last year’s harvest of 3.62 million MT. On May 14th, Zambia issued its crop estimates which indicate that maize production was 11 percent below last year’s levels, but is still 6 percent above the five-year average. Qualitative estimates from Tanzania suggest that maize production levels could be well above the past five-year average, while in Mozambique, estimates are at five-year average levels. In Zimbabwe official estimates released in July put national cereal harvests at 15 percent below last year’s levels on account of an erratic start of season and the mid-season dry spell.    

    Markets and Trade

    The region’s projected supply/demand for maize, the main staple food in the region, indicates national level surpluses only in Malawi, South Africa, Tanzania, and Zambia (Table 2). Elsewhere, maize harvests fall short in meeting national requirements, leaving gaps that need to be filled through commercial and informal cross border imports. The projected level of maize surplus in South Africa is 36 percent below the five-year average  and this lower surplus is of regional concern because the structurally deficit countries of Botswana, Lesotho, Namibia and Swaziland (BLNS) depend largely on South Africa’s exports. Furthermore, import demand from international markets, including those in Mexico and Asia, is expected to remain strong over this marketing season given the tightening of global export supplies and concern over planting delays in the United States. As South Africa export demand increases, prices are also expected to rise – a trend already observed between May and June when prices increased by 6 percent on the Southern Africa Futures Exchange (SAFEX). These higher prices will likely be transmitted through imports to neighboring SADC countries, adversely impacting food access for the vulnerable households in those countries.

    Maize on the SAFEX is still trading below the international grain prices (US Yellow), although by mid-July, prices (in USD equivalents) had begun to rise. This trend is atypical because normally prices remain stable over the harvest period (April – July).  While prices in Lusaka, Zambia and Mitundu, Malawi also remain marginally below international price levels, significant increases were recorded between May and June. The exception is in Dar es Salaam, Tanzania where prices are well above the U.S. prices, but have been on a steep decline since March (Figure 2).

    Throughout most reference markets however, nominal prices of staple foods in local currencies has remained stable and in line with seasonal trends between May and June, as new harvests that started in April continued to replenish trader and household private stocks.  Nonetheless, maize grain and maize flour prices remained higher than their respective 2012 and five-year average levels due to the tighter supplies as a result of the generally lower levels of production in 2012/13 compared to last year.

    Traders in Malawi, Tanzania and Zambia are actively sourcing maize within and outside of their own countries through cross border trade. Tanzania continues to supply markets in the Greater Horn, while Zambia and Malawi’s exports are destined for Zimbabwe and Tanzania. The export ban imposed by the Government of Malawi in December 2011 remains in place. While this is expected to reduce formal exports, informal exports are expected to continue as normal (or even rise given the more lucrative Tanzanian prices) even with the stricter policing on the country’s borders with Tanzania. Already, data on informal maize exports captured between April and June 2013 at the Songwe and Mbirima borders indicates volumes that are 39 percent higher than the five-year average during this period. The Government of Zambia is expected to continue with restricted exports this season, especially following the reduced surplus that has been projected for the 2013/14 marketing period. As the harvest and buying season progresses, the Government of Zambia’s announcement in May to stop supplying maize to millers this marketing season has resulted in both millers and traders purchasing large volumes of maize on the market at prices mostly above the Food Reserve Agency (FRA) buying price of K65 per 50Kg. Farmers who had been holding their stocks in anticipation of selling to the FRA started selling to the private sector; this is improving supplies in major towns including Lusaka, while also increasing supplies to the areas near the Democratic Republic of the Congo (DRC) border. The start of the FRA maize purchase program in order to procure 500,000 MT for the strategic grain reserve has been delayed by a few months. Nonetheless, small scale farmers are generally satisfied with the demand from the private sector, along with their higher price levels and spot cash purchases.

    National vulnerability assessment committee’s (NVAC) findings, 2013/14

    Findings of the 2013 vulnerability assessments conducted by the region’s national vulnerability assessment committees (NVACs) indicated that about 7.70 million people in the region (excluding the DRC) are at risk of food insecurity, with varying levels of food consumption gaps, during the 2013/14 consumption period.  The number of food insecure households has risen dramatically this season due to the widespread nature of failed harvests compared to last year  and the past five-year average.  Estimates for Angola were made available again this year as a result of the continuing impacts of consecutive years of drought conditions in the southern provinces. This year, five countries (Lesotho, Malawi, Namibia, Swaziland, and Zimbabwe) have 10 percent or more of their rural population identified by the NVACs as food insecure for periods ranging from three to eight months (Table 3). Namibia is facing one of the highest levels of acute food insecurity (48 percent of the rural population) on account of a severe drought in the northern cropping regions. Four of these countries (Lesotho, Malawi, Swaziland and Zimbabwe), have consistently assessed a significant number of food insecure households since the drought induced food crises in the 2000-2004 period; and the recent prevalence of acute food insecurity has coincided with a period of slowed macroeconomic growth.  The NVAC findings have highlighted concerns over the erosion of household coping capacities in the region, likely due to the impacts of economic underperformance on the erosion of formal and informal employment opportunities – limiting the ability of households to cope with multi-year hazards.

    Assumptions

    The food security outlook for July to December 2013 is based on the following regional-level assumptions:

    Markets and Trade

    • Given the varied 2012/13 crop production conditions driven mainly by poor rainfall performance in parts of the region, overall food supplies (especially the main staple cereals) are expected to be tighter in the 2013/14 consumption season when compared to last year. Exportable surpluses at the regional level (mainly from South Africa and Zambia) are projected at lower levels when compared to last year, but both intra and extra regional exports are still expected to remain robust. The structurally grain deficit countries of Botswana, Lesotho, Namibia, and Swaziland (BLNS) that rely on South Africa for food imports will continue to access most of their maize import requirement from South Africa although competition with overseas import demand is expected to remain high. 
    • Zambia’s exportable surplus (which is projected at half the 2012/13 level) is expected to be traded formally with Zimbabwe (which is its main source of non-GMO maize), and formally and informally with the DRC, Tanzania, and Malawi. Despite Zambia’s restricted formal exports, informal maize exports are expected to increase substantially due to delays in the start of the FRA maize purchase program, and the high regional demand for maize. On the other hand, informal maize imports from Tanzania and Mozambique will also increase given the high and increasing prices of maize in Zambia
    • In Malawi, despite the export restrictions and limited supplies, the more lucrative prices prevailing in East African destinations will continue to provide a huge incentive to informal cross border trade in response to sustained strong demand from East Africa. Last year, an estimated 27,000 MT was moved into Tanzania from Malawi alone while an additional 20,000 MT is estimated to have been moved from Zambia into Tanzania.
    • As the 2013 harvests continue to boost available stocks, maize spot prices on the South African Futures Exchange (SAFEX) are expected to follow seasonal trends, remaining stable up to September, and then rising from October onwards. SAFEX maize price levels, which have a bearing on regional food access, will also continue to be influenced by global maize price trends, the sustained depreciation of the Rand, and the speculative behavior of grain exporters as they source for more lucrative markets further afield
    • A combination of several factors including the continued depreciation of the South African Rand, fluctuating fuel prices, recent wage increases in the agricultural sector, and ongoing calls for higher wages in the mining sector are likely to exert more pressure on inflation, resulting in high food prices in South Africa. High food costs in South Africa coupled with high fuel and transport costs are likely to be reflected in higher food prices in the import dependent countries (especially the BLNS).
    • After declining to a 2013 year-to-date low per barrel in April, Brent crude oil spot prices stabilized in May and June and are projected to remain stable or decrease marginally in the coming months, reflecting the increasing supply of liquid fuels from non-OPEC countries (U.S. Energy Information Administration). However, in FEWS NET countries, fuel price trends in the outlook period will vary depending not only on the international market conditions, but also on the design and implementation of local fuel import and price policies. 

    Agricultural and other labor/ Remittances

    • Agricultural labor opportunities are expected to remain at normal levels typical for the July to September period. Similarly, from October to December, labor opportunities are expected to start increasing (following normal trends) with the start of land preparation for the next agricultural season, provided the moisture levels allow for land tilling activities to commence.
    • In South Africa, increases in farm and other labor wages is likely to lead to sustained job losses as companies attempt to break even. Also the protracted labor disputes in the mining sector continue to result in retrenchments. Reduced migrant labor opportunities will reduce remittances during the outlook period to countries that have significant migrant populations in South Africa including Lesotho, Mozambique, Swaziland, and Zimbabwe.

    Pest Infestations and Disease Outbreaks

    • As reported by the International Red Locust Control Organization for Central and Southern Africa (IRLCO-CSA), parts of the region remain at risk of red locust outbreaks during the outlook period. This includes Ikuu-Katavi plains (Rukwa, Kigoma and Kagera regions of Tanzania), Lake Chilwa/Lake Chiuta plains (Malawi and Mozambique), the Buzi-Gorongosa and Dimba plains (Mozambique), and the Kafue Flats and Lukanga swamps (Zambia). Vegetation burning is in progress in all Red Locust outbreak areas and this is likely to concentrate Red Locust populations further into dense swarms on to un-burnt grass patches. With increasing temperatures in the coming months, some of the swarms could migrate and invade neighboring areas and locations farther afield. 
    •  During the 2012/13 rainy season, huge areas were infested by three successive generations of the Malagasy Migratory Locust, which developed under relatively suitable weather and ecological conditions in mid and south western parts of the country. As a result, an increasing number of swarms have formed and are now progressively moving north. It is likely that they will reach the northern parts of Madagascar, including the Majunga, Sofia, and Alaotra basins.  By September, the Food and Agriculture Organization (FAO) estimates that two-thirds of the country will be infested. Current efforts through FAO’s emergency program are not likely to effectively control the outbreaks as the program remains underfunded.  

    Start of season/ Agro-climatology

    • Seasonal rainfall will start according to climatology (based on the median start dates from 2001-2012) and will be near average in terms of amount (Figure 4).
    • Variability in the start of the season is expected to follow climatological trends, with higher variability/uncertainty in rainfall onset expected in the southern half and eastern parts of the region.  The European Center for Medium-range Weather Forecasts (ECMWF) forecast is showing enhanced chances of above normal rains in parts of South Africa and Lesotho, where the season normally starts earlier, for the August-December period. However, the International Research Institute (IRI) forecast is calling for climatology, indicating no clear signals of which way the season will turn out.

    Humanitarian Assistance

    • Although Minimal (IPC Phase 1) acute food insecurity outcomes are expected to continue across most of the region between July and December, humanitarian assistance needs are expected to be above average due to national and localized production shortfalls as a result of drought conditions this season. In some parts of the region, humanitarian assistance is projected to be required as early as July or from the start of the lean season in October. In FEWS NET presence countries, the needs in this period will be more acute in affected areas in both Zimbabwe and Malawi.  Additional assistance pledges are expected after the presentation of the NVAC results to government officials and the humanitarian community on 31st July 2013.
    • Local and Regional Purchases (LRP) for humanitarian food commodities will likely be reduced this 2013/14 consumption year since current projections indicate that there will be less tradable maize available this year, especially from Zambia, the main source in recent years. Over the past four years, humanitarian assistance purchases in Zambia have been steadily increasing with over 63,000 MT purchased last year. However, the potential for these purchases in Zambia is lower this year due to lower surplus availability.  Purchases from Malawi have mainly been very limited and confined only towards local programs since the country has an almost non-existent tradable surplus this year. Availability for purchases from South Africa for countries in which GMO is acceptable will be fine; however supplies may be limited for recipient countries that have a non-GMO policy. As the marketing season begins, the potential for purchases in Tanzania is high.
    Most likely food security outcomes

    At the regional level, food security conditions are generally expected to be stable between July and September. Stable conditions are projected based on current food availability and average or above average harvests, which should be sufficient to meet consumption requirements in this period. Most rural households will continue to have access to their own food production until the onset of the lean season in October/November. Market-dependent households are also expected to be able to access adequate food, as prices are expected to remain stable until the beginning of the lean season. In addition, income-earning opportunities are expected to be normal over this period, which incorporates part of the upcoming 2013/14 agriculture season. It is therefore expected that food insecurity among most rural households in the region will be Minimal (IPC Phase 1) between July and September.

    With the start of the lean season in October, food security conditions will start deteriorating across the region. The reduced overall national level supplies in some countries will result in greater pressure on available supplies, causing an increase in prices levels that are higher than those recorded last year and the recent five-year average. Already, current nominal prices at monitored reference markets are above last year and past five-year average levels, a factor which will negatively impact a household’s ability to access enough food to meet basic requirements.  Nonetheless, in the areas where 2013 harvests have been good, acute food insecurity outcomes between October and December will be Minimal (IPC Phase 1) since at least 80 percent of populations in these areas will be able to meet their food needs. In areas of concern identified by FEWS NET and those where the NVACs have identified localized food insecurity, many of the affected poor and very poor households will face Stressed (IPC Phase 2) and Crisis (IPC Phase 3) acute food insecurity outcomes over the outlook period (July to December) in the absence of assistance. NVAC assessments suggest that part of the food needs for the food insecure can be met through national and regional procurements by Governments and their humanitarian partners.


    Events that Might Change the Outlook

    Table 4. Possible events over the next six months that could change the most-likely scenario.

    Area

    Event

    Impact on food security outcomes

    Cereal deficit parts of the region

    Local and cross border traders do not respond as anticipated and limited food stocks flow to the deficit areas.

    Markets in food deficit areas will be undersupplied, causing food prices to rise sharply above typical seasonal trends.  Food consumption gaps will increase, especially for poor households.

    Prices of main staples, especially maize prices on SAFEX in South Africa, the main export source - remain stable and follow normal seasonal trends.

    Stable food prices will enable market-dependent households especially the poor and very poor to access adequate food

    Across the region

    Start of season is delayed and erratic; the first half of the season receives below normal rains.

    Late start of rains will delay availability of seasonal wild foods, limit labor opportunities, and result in households failing to access adequate food between October to December 

    Angola, Mozambique and Tanzania

    Official harvest estimates released indicating significantly lower cereal availability than current expectations.

    Reduced overall regional cereal supplies leading to limited tradable supplies, sharply rising staple food prices, and limited food access for households in low producing areas

    Across the region

    Humanitarian interventions/ assistance programs are inadequately funded resulting in delayed commencement. 

    Poor and very poor households will be unable to meet their livelihood and survival needs, resulting in deteriorating acute food insecurity outcomes in these areas.

    Figures Seasonal Calendar for a Typical Year

    Figure 1

    Seasonal Calendar for a Typical Year

    Source: FEWS NET

    Figure 1. Most-likely food security outcomes, July to September 2013.

    Figure 2

    Figure 1. Most-likely food security outcomes, July to September 2013.

    Source: FEWS NET

    Table 1. SADC cereal regional production estimates (‘000 MT).

    Figure 3

    Table 1. SADC cereal regional production estimates (‘000 MT).

    Source: SADC RVAA summary of Results, 8-10 July 2013

    Table 2. SADC 2013/14 projected maize supply/demand.

    Figure 4

    Table 2. SADC 2013/14 projected maize supply/demand.

    Source: SADC RVAA summary of Results, 8 -10 July 2013

    Figure 2.  Maize prices in selected southern Africa countries compared to international prices (USD/kg).

    Figure 5

    Figure 2. Maize prices in selected southern Africa countries compared to international prices (USD/kg).

    Source: SAFEX, SAGIS, and FEWS NET

    Table 3. NVAC-estimated numbers of food insecure populations*

    Figure 6

    Table 3. NVAC-estimated numbers of food insecure populations*

    Source: SADC RVAA summary of Results, 8-10 July 2013

    Figure 3. Median Start of Season Based on 2001 – 2012 satellite rainfall estimates.

    Figure 7

    Figure 3. Median Start of Season Based on 2001 – 2012 satellite rainfall estimates.

    Source: USGS/FEWS NET

    To project food security outcomes, FEWS NET develops a set of assumptions about likely events, their effects, and the probable responses of various actors. FEWS NET analyzes these assumptions in the context of current conditions and local livelihoods to arrive at a most likely scenario for the coming eight months. Learn more here.

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