Record high staple food prices driving acute food insecurity

• The results of the Household Economy Approach (HEA) outcome analysis conducted by FEWS NET in May 2016 indicate that a large population of very poor and poor households, especially in the south, will experience Stressed (IPC Phase 2) and Crisis (IPC Phase 3) acute food insecurity outcomes, requiring emergency assistance to protect livelihoods and cover food consumption gaps. By the October to January period the situation will worsen and middle income, as well as poor, and very poor households will face Stressed and Crisis outcomes.

• Average national prices for maize have stabilized but are still at a record high when compared to the five-year average. However, the stability is short-lived as prices in most key supply and consumer markets are reported to have started steeply increasing in June. Typically prices decline in the harvest and post-harvest period, but this year key markets are already registering increases. 

• After experiencing drought due to one of the strongest El Niño events on record in the 2015/16 cropping season, early forecasts indicate that a La Niña event could result in average to above-average rainfall during the next cropping season in Malawi. However, FEWS NET’s analysis explains that even a normal start to the 2016/17 cropping season is not expected to improve acute food insecurity outcomes because of the level of distress sales and crisis coping that households exhibited prior to the 2016 harvest and the extremely high maize prices projected for this year. 

Current Situation

• In the Malawi Food Security Outlook from February-July 2016, FEWS NET assumed that most households would be consuming cereals from their own production during the main harvest period. However, due to erratic rains and the El Niño induced drought during the 2015/16 season, maize production this past season was below average. The total cumulative rainfall in most of the south was 55-85 percent of normal, while in the central region localized areas received 70-85 percent of normal rainfall (Figure 1). Significantly fewer households in these areas are currently consuming cereal from their own production and many are instead relying on maize purchases. As a result, market demand for cereals is atypically increasing during the main harvest period and this is driving up maize retail prices (Figure 2).
• The availability of maize and other foods in most households, especially in the southern and central regions, is significantly below average. Many very poor and poor households in these areas continue to experience limited food access due to limited harvest labor activities and other limited income generating activities.
• The recently released second round agricultural production estimates indicate that this will be the second consecutive year of below-average cereal production for Malawi (Figure 3). Estimated rainfed maize production this year is 32 percent below the five-year average. Production of other cereals, including rice, sorghum, and millet are estimated to decrease by about 20-40 percent below the five-year average, and legume production is expected to be 5-10 percent below average.
• Tobacco production, which is mainly grown by large scale farmers and on estates, is estimated to be average this year. However, cotton production, a common cash crop among small scale farmers, has decreased by about 77 percent. This coupled with low tobacco prices will reduce income access across all wealth groups.
• Irrigated maize production estimates indicate that production levels are below-average across all three regions. In the north, irrigated maize production is estimated at about 18 percent below the five-year average, while in the south it is around 25 percent below average. The largest reduction in irrigated crop production is expected to be in the central region, where irrigated maize levels will be only be half of the five-year average.
• In addition to national cereal deficits, the country’s Agricultural Developing and Marketing Corporation (ADMARC), a parastatal, is reporting lower than expected farm gate purchases for the replenishment of their stocks. This shortage in maize supplies could jeopardize ADMARC’s ability to supply their markets and posts across the country. ADMARC has currently suspended the sale of subsidized maize in most of its outlet markets because stocks are low. The suspension of subsidized maize sales is already exerting upward pressure on maize prices in local markets. Maize prices are already starting to increase atypically at a time when maize prices are normally decreasing seasonally.
• Between April and May, national average prices for maize remained stable at MWK 173 per kilogram as harvesting of maize peaked in the central and northern regions of the country. However current maize prices are 156 percent higher than the five-year average and 67 percent above May 2015 prices. Some markets especially in the southern region have already started registering atypical price increases. This may be attributed to the production deficits recorded in the recent production period which has left below average maize market supply levels.
• National food availability is at its lowest level in the past ten years. Typically carryover stocks for the Strategic Grain Reserve (SGR) are sizable. This year the maize stocks within the SGR are at their lowest levels in the past 5-10 years. In March 2016, it was estimated that after all humanitarian assistance supplies were drawn down for distribution by late April, the SGR would only have 2,000 MT of maize remaining. ADMARC estimated their carryover stocks to be around 15,000 MT, most of which was imported from Zambia between August-December 2015. According to current government estimates, ADMARC and the SGR will each require 250,000 MT in cereal replenishment in order to meet requirements for humanitarian assistance, subsidized sales, and reserves.

National Level Assumptions

The Food Security Outlook for June 2016 to January 2017 is based on the following national-level assumptions:

• Prospects for the next main production season: After experiencing one of the strongest El Niño events on record during the previous 2015/16 cropping season, early June CPC/IRI forecasters indicate that a La Niña event is likely to develop by late 2016. In the southern Africa region a La Niña event tends to be associated with average to above-average rainfall (Figure 5). These likely rainfall conditions are sufficient and would promote crop development in Malawi between October 2016 and January 2017. However, ENSO and sea surface temperatures are not the only factor affecting southern Africa rainfall. The Subtropical Indian Ocean Dipole (SIOD) influences ENSO’s impact on rainfall in southern Africa. Positive SIOD enhances La Niña influence on southern Africa rainfall, while negative SIOD mitigates the influence. Therefore, information on the state and impact of SIOD on 2016/17 rainfall will be more certain later in the year. Given that the start of the season is far away and forecasts are still forthcoming, FEWS NET is assuming a normal start to the 2016/17 cropping season. In addition to rainfall amounts, prospects for the next main production season will also be driven by the timing and availability of subsidized inputs and seeds.
• Farm Input Subsidy Program (FISP): A reduction in FISP beneficiary numbers for the 2016/17 production season has been announced. The number of beneficiaries receiving subsidized inputs is being reduced to 900,000 for the 2016/17 cropping year. This is down from an estimated 1.5 million during the previous 2015/16 season. This 40 percent reduction in the coverage of the FISP is coming at a time when most households are still recovering from drought and have depleted their livelihoods so they have no means of purchasing input in commercial markets. The recent cutback in the FISP may adversely impact production in the 2016/17 cropping season.
• Seasonal forecast for irrigated production (June-Sept): Due to the El Niño-induced drought in last season and the reduced availability of residual moisture, irrigated maize production estimates across the country are expected to register significant reductions that will vary by region. Irrigated production in the south will be at about 87 percent of the five-year average; the central region will be 73 percent of average, while in the north production will be around average. Across the country about 10-13 percent of crops from irrigated production is sold while the remainder is consumed.
• Food availability in local market supplies /ADMARC /Informal trade/imports: This year the maize stocks within the SGR are at their lowest levels in the past 5-10 years. Based on calculations from the preliminary national food balance sheet, staple food availability across the country will be significantly below average throughout the outlook period (June 2016-January 2017). Recent crop estimates and national cereal requirements indicate that Malawi will likely register a cereal requirement gap of over 1 million MT. Domestic staple food supplies will only cover 70 percent of national staple food needs in the 2016/17 marketing year according to current estimates. The availability of supplies for purchase by both ADMARC and among private traders has also been impacted by the below-average 2016 production. The government has announced plans to import maize, but funding and sources of the maize have yet to be identified. Since South Africa and most of the southern Africa region is facing large maize production deficits, Malawi may need to import maize from outside of the region.

However, the depreciation of the Malawi Kwacha could adversely impact the country’s capacity to import maize during the outlook period (Figure 4). Tobacco is a major source of foreign currency and even though production this year is average, the Kwacha has depreciated during the period for tobacco sales.

Informal and formal maize imports are expected to be below average during the outlook period. Since neighboring Mozambique experienced below average 2016 production, the usual flow of maize supplies into Malawi will be reduced this marketing year. Similarly, formal and informal maize from Zambia will be much lower compared to the previous marketing year because Zambia has reported below normal levels of exportable stocks this year.

• Food prices and projections: National average food prices will be significantly higher than 2015/16 prices as well as the five-year average due to below average 2016 production. ADMARC and private traders are buying maize at prices that are already 40 percent above ADMARC’s subsidized selling price. In May, maize prices were 53 percent above last year’s prices and 126 percent above the five-year average. FEWS NET price projections for maize show that prices will start to increase from June reaching about MWK 170/kg in September, MWK 200 in December and peaking at an average of MWK 330/kg in March. Another factor that could impact food prices between June 2016 and January 2017 will be the ability of ADMARC to purchase enough maize to supply their markets this consumption year. Low supplies in ADMARC markets and posts across the country could reduce the capacity of the parastatal to stabilize food prices.
• Income availability/crop sales/livestock: Between June and September, the number of casual labor opportunities is expected to be reduced by half for poor and very poor households. This will result in lower amounts of income during this period. In May, FEWS NET observed distress sales and a significant decrease in all livestock prices of nearly 50 percent. Although national tobacco production is at average levels this year, the selling price is likely to range from 10-20 percent below average. This will directly impact the amount of income that middle and better-off households receive through their crop sales. Ultimately this will limit the amount of casual labor that middle and better-off households can offer to poor households, leading to lower levels of income earned by poor households from labor between October and January.
• Nutrition: According to the 2014 MICS survey, the national Global Acute Malnutrition (GAM) prevalence across Malawi was 3.8 percent, which is considered “acceptable” according to the WHO Crisis threshold. In seven recent nutrition surveys conducted using the Standardized Monitoring and Assessment of Relief and Transitions (SMART) methodology, the prevalence of GAM among children between the ages of 6-59 months remained under the 5 percent threshold across most of the country, with the exception of the Lower Shire zone, where a GAM prevalence of 6.6 percent (CI: 4.3-9.9) was recorded. These nutrition surveys were completed during the harvest period in May 2016. The GAM level in Lower Shire shows a deterioration of acute malnutrition that could be linked to the prolonged drought experienced in the southern region since 2015 and its effect on household food intake as a result of low or no crop harvests, loss of income, and increases in food prices. During the outlook period (June-January) the level of acute malnutrition is expected to remain above 5 percent in the Lower Shire because of the effect of drought and the anticipated food access challenges that poor and very poor households will face, especially during the lean season.
• Humanitarian Assistance: Currently, humanitarian assistance is not planned, funded, or likely as of June. This is likely to change during the outlook period (June 2016-January 2017). In the past, humanitarian assistance has started in October. The WFP recently released an emergency resourcing alert for Malawi, stating that the Malawi Vulnerability Assessment Committee (MVAC) found that at least 39 percent of the population will require emergency food assistance during the current consumption year.

Most Likely Food Security Outcomes

Households have produced very little maize, sorghum, and millet crops during the main season harvests and by June most very poor and poor households are depending on food purchases in order to meet their food needs. Access to food through purchases is expected to continue for the remainder of the consumption year, with the exception of households in areas with access to irrigated crop production in September and or labor in-kind between October and January. Between June and September, some households may engage in non-traditional income generating activities such as migration into Mozambique to do odd jobs, migrating to trading centers to look for jobs, and migrating to the sugar estates for labor opportunities. Poor and very poor households that have depleted most of their assets will continue to engage in crisis coping mechanisms due to significantly reduced income earning opportunities and the very high food prices that are expected. These households will face Crisis (IPC Phase 3) acute food insecurity outcomes in the absence of humanitarian assistance.

ADMARC posts are expected to open in August/September, however their supplies will be insufficient to cover the high demand. Private traders will try to supply steady maize supplies from surplus producing areas in the north and Zambia to deficit areas in the south and central regions. The high demand and lower than normal supplies in both local and ADMARC markets, will maintain upward pressure on prices for maize sold by private traders in local markets. FEWS NET technical analysis estimates that maize prices are likely going to range from MWK 175 to 300/kg in the May – September period, MWK 300 to 350/kg in the October to December period and  MWK 350 to 400/kg in the January- March 2017 period. Prices for alternative food such as sweet potatoes and cassava will also be about double the five-year average.

This analysis is consistent with the results of the Household Economy Approach (HEA) outcome analysis conducted by FEWS NET in May 2016, which found that FEWS NET’s recent assessments and outcome analysis results show that a historically large population of households in the southern and central regions will be facing Crisis (IPC Phase 3) outcomes through January 2017, in the absence of humanitarian assistance (Figures 6 and 7).