Liquidity challenges expected to negatively impact livelihoods and food access countrywide

• Crisis (IPC Phase 3) acute food insecurity outcomes are expected to continue among poor households in the south from June 2016 through January 2017. This is mainly due to very low 2015-16 crop harvests, increasing economic hardships, and anticipated below average livelihood options. Poor households in parts of the traditional maize-surplus  areas in the north will mainly be Stressed (IPC Phase 2) because of livelihood protection gaps due to below average crop harvests as well as prevailing liquidity challenges.

• Although the government has not yet released the official crop production report, maize production from the 2015-16 cropping season is estimated at levels ranging from 35 to 50 percent of the five-year average. This means that for the 2016-17 consumption year the estimated national cereal deficit will be over 1 million MT. FEWS NET anticipates that the gap will be partly filled through international imports outside of the region since most of the southern Africa region is facing large maize production deficits resulting from El Niño-induced poor rains. Maize supplies on most markets across the country is expected to be lower than typical and prices are expected to be above average throughout the Outlook period. 

• Since the start of the main harvest in April, the national economy has been impacted by critical cash shortages and this is negatively impacting basic economic and livelihood activities, including remittances, agricultural and non-agricultural labor, as well as self-employment opportunities in rural and urban areas. From early May, the government announced the implementation of a number of measures to address this situation. 

Current Situation

• Areas in the south and some marginal production areas in the north are in Crisis (IPC Phase 3) due to poor 2015-16 crop production, limited livelihood options, and prevailing economic challenges. As harvesting activities continue, some few areas in the surplus-producing north are experiencing Minimal (IPC Phase 1) food security outcomes, with most areas being Stressed (IPC Phase 2) due to poor production as well as liquidity challenges. These Crisis (IPC Phase 3) and Stressed (IPC Phase 2) acute food insecurity outcomes are being experienced mainly in the absence of food assistance activities. 
• As the 2015-16 harvest activities conclude, the majority of households in the south (Matebeleland North and South, Masvingo, most of Manicaland and Midlands Provinces) have none or very few crops to harvest due to the erratic and late start of the rains, below-average cropped area, and long dry spells. Most households do not have own-produced cereal stocks to consume, so maize and maize meal market purchases are common ways by which people are accessing food. Some districts in the north that planted crops much later than normal are currently harvesting these crops, however yields are lower than typical. The flow of grain from traditional surplus areas in the north and elsewhere into markets is low.
• Anecdotal evidence indicates that the national cereal carryover stocks into the 2016-17 consumption year are below the five-year average. These carryover stocks include those from government, the private sector, as well as farmers. In early June, the Grain Marketing Board (GMB) indicated it had about 91,000 MT of maize available in the strategic grain reserves. Grain stock levels among the private sector have not been established.
• Typical livelihood and coping activities are lower than usual due to the poor harvests and a challenging economic environment (including poor liquidity and cash shortages). The demand for casual labor for harvesting continues to be low due to poor production. Other self-employment options such as construction have been affected by low demand due to poor liquidity. There is an increase in petty trading (including cross border trade) in most communities. However, incomes from the latter are limited due to high competition among an increasing number of traders and reduced demand due partly to poor livelihoods and cash shortages. In most districts the occurrences of informal mining (mostly gold mining) is on the rise.
• Since the start of the main harvest in April 2016, the national economy has been impacted by critical cash (US Dollar) shortages, resulting in long queues at most banking halls across the country. In 2009 when the multiple currency system was introduced to Zimbabwe, there was equal use of the US Dollar and the South African Rand for currency. Since that time Zimbabwe has begun to rely more and more on the US Dollar for currency, and today it is used for the majority of transactions. The cash shortages are partly a result of increasing national imports and decreasing export earnings, the externalization of hard currency, and non-banking trends in the informal and formal sectors. Banks are now imposing cash withdrawal limits for individuals and corporations in response to the panic surrounding the cash shortages and the proposal to introduce bond notes. Another factor that is contributing to the cash shortages is high regional demand for the US Dollar because of the depreciation of several national currencies, especially the South African Rand.
• In May, the Reserve Bank of Zimbabwe (RBZ) announced a series of measures to stem the cash shortages and promote exports in order to increase the availability of hard currency in Zimbabwe. These measures include the planned October 2016 introduction of US $200 million worthy of bond notes guaranteed by the Africa Export Import Bank. The notes will be denominated at US Dollar equivalent and will only be usable in Zimbabwe, partly deterring externalization. The announcement by the RBZ has been met with mixed reactions by the public and businesses because of concerns over a possible recurrence of the hyperinflation and critical shortages experienced for basic commodities during the era of the Zimbabwean Dollar in 2007-08. Prices for some basic commodities have reportedly increased in some shops.
• In response to this announcement, the RBZ has compiled a priority list of imports which include food (cereals) and fuel among the highest prioritized. In early June, the government suspended the importation of all agricultural produce except for strategic cereals (maize, wheat, and rice) and raw materials such as soya beans and cotton cake used in cooking oil manufacturing. Government has also announced the removal of general import licenses for a wide range of goods (including food stuffs, building materials, furniture, and other consumer products) and is now issuing three-month permits for such imports upon justification of why the goods are required in the country. This measure is meant to protect local industry from cheap imports, but fears are that it will likely affect industry and the informal sector who depend largely on imports for their businesses.  
• Since the importation of over 643,000 MT of maize between April 2015 and March 2016 to cover the cereal deficit for the previous 2015-16 consumption year, formal maize imports still continued early in the 2016-17 consumption year. About 79,300 MT of maize was imported in May 2016, which is 164 percent higher than those received in May 2015. These trends suggest a deeper deficit this consumption year compared to last year and an early start to the 2016-17 lean season due to below normal production. Starting in April 2016 formal maize imports from South Africa have surpassed those from Zambia. Zambia recorded a tradable surplus of over 630,000 MT for the 2016-17 consumption year (28 percent below last year). However, in May, following the release of official crop estimates, the government announced that no export of new maize will take place until after September. Only the 167,000 MT that had been contracted and paid for (mostly to Zimbabwe) from last season’s harvest would be allowed to be exported. The move is meant to allow the Federal Reserve Agency a window period to purchase first on local markets and curb high price increases anticipated due to high regional demand.
• Average national maize grain prices for FEWS NET sentinel markets in May 2016 ($0.42/kg) was 17 percent above the same time last year and 24 percent above the five-year average. The average maize meal price for May 2016 ($0.58/kg) was 9 percent below May 2015 and 5 percent above the five-year average. Maize meal prices are largely stable, with some markets indicating price decreases.
• The Tobacco Industry and Marketing Board (TIMB) estimates that 2015-16 tobacco production at around 120 million kilograms, which is 20 percent less than last year (190 million kilograms) and 6 percent below the five-year average (169 million kilograms). The 2016 selling season opened on March 30th, six weeks later than usual, due to late start of the rains and late planting this season. The average price of the crop at both auction and contract floors is comparable to same time last year.
• Less than two months into the dry season, pasture conditions in the south are already poor. Cattle body conditions are deteriorating quickly following the temporary relief from the unexpected rains in March. Goats are in good condition and even thriving in parts of the south. In addition to the poor body conditions of cattle, prices continue to be below-average due to poor liquidity and distress sales. Foot and Mouth Disease (FMD) is reportedly under control and there are no restrictions on cattle movements in previously affected districts.

National Assumptions

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

Water availability: below normal rains received across much of the country during the 2015-16 rainfall season will result in poor water availability for human, livestock and other livelihood options from June to October, especially in the south. Conditions are expected to be critical as early as June and July in some areas. In the north (except the extreme northern parts of the country), water availability is expected to be better compared to the south, ensuring comparatively better livestock conditions and livelihood options from June to October.

2016-17 rainfall season: After experiencing one of the strongest El Niño events on record during the previous 2015-16 rainfall season, early June NOAA Climate Prediction Center and International Research Institute for Climate and Society (CPC/IRI) forecasts indicate that a La Niña event is likely to develop by late 2016. In Zimbabwe and most of the region, a La Niña event tends to be associated with average and above-average rainfall (Figure 2). These likely rainfall conditions would promote agricultural activity in Zimbabwe between October 2016 and January 2017. However, El Niño-Southern Oscillation (ENSO) and sea surface temperatures are not the only factors affecting southern Africa rainfall. The Subtropical Indian Ocean Dipole (SIOD) also influences ENSO’s impact on rainfall in southern Africa. Positive SIOD enhances the La Niña influence on southern Africa rainfall, while negative SIOD mitigates the influence. Therefore, the state and impact of SIOD on 2016-17 rainfall will only be estimated with more confidence later in the year.Given that the normal start of the rainfall season is several months away and forecasts are still forthcoming, FEWS NET is assuming a normal start to the 2016-17 cropping season. Localized flooding may occur in flood-prone areas in the event that heavy and persistent rains are received during the season (December to February). Such flooding occurrence will likely increase the incidence of water-borne diseases.  

2015-16 national cereal production: 2015-16 production is expected to be below average and lower than last year’s levels. The current five year average is 1.1 million MT for maize, and this year FEWS NET expects production to be between 50 and 65 percent below the five-year average. The reduced production is expected mainly due to late start of rains, prolonged dryness and below normal rains, and significantly reduced cropped area compared to last year and the five-year average. Poor access to crop inputs also played a part due mainly to high prices, poor livelihoods and household incomes, liquidity challenges and below average support from government and partners.

National carryover stocks: As a result of a poor national cereal production from the 2015-16 cropping season, it is assumed that national carryover stocks into the 2016-17 consumption year are lower than typical. Although the strategic grain reserves are expected to hold a minimum of 500,000 MT at all time, as of early June the GMB was reported to be holding less than 100,000 MT of maize. Even the traditionally surplus-producing areas in the north were affected by drought conditions this season and have exhausted their household carryover stocks from last season. The private sector relied mainly on maize imports for much of the previous 2015-16 consumption year.

2016-17 national cereal deficit: A higher national cereal deficit is expected for the 2016-17 consumption year in comparison to last year (revised to 645,000 MT) and the five-year average. Almost all of the cereal gap for the previous 2015-16 consumption year was filled with regional imports of maize from Zambia. Unfortunately, Zambia’s exportable surplus this year will be smaller than last year. Regional demand for Zambia’s exportable stocks will be extremely high this year since South Africa (a typical net exporter) and most of the southern Africa region are facing large maize production deficits. Because of this, Zimbabwe is expected to rely more on international maize markets this consumption year compared to previous years.

Cash crop sales and incomes: Overall household earnings from cash crop sales are expected to be low due to reduced production and low producer prices for some crops. As indicated, tobacco production is estimated at 20 percent below last season and 6 percent below five-year average. Cotton production is estimated to be near an all-time low given the very low area cropped this season and prices are expected to remain low.  

Maize grain prices: Due to the need to fill the national cereal gap, FEWS NET expects that Zimbabwe will rely on higher international imports. Throughout the outlook period, maize grain prices will remain high and above the 2015-16 and the five-year averages. The liquidity challenges that the country is facing are expected to cushion against extreme price hikes. The typical decline in maize grain prices in the immediate post-harvest period (June-July) is expected to be marginal and short-lived in the north due to poor production and low local supplies on markets. No such price reductions are expected for most markets in the south which will start the consumption year sourcing from external markets.

Maize meal prices: From June to September, prices are expected to be largely stable. High competition among millers, maize meal import flows from South Africa to southern districts, and the weak South African Rand are some of the factors that will likely help to stabilize prices. In both the north and south maize meal prices are expected to increase later in the marketing season due to anticipated higher import costs.

Livestock prices and livestock-to-cereal terms of trade: Cattle prices are expected to be lower than last year and the five-year averages in most areas, especially in the south. Poor livestock prices against high cereal prices will result in unfavorable livestock-to-cereal terms of trade from July through October and this will adversely affect poor households’ food access. However, drought-related livestock deaths are expected to be lower than last year considering the improved weather forecast for the 2016-17 cropping season.

Agricultural and non-agricultural labor and self-employment opportunities: The combined effects and impacts of 2015-16 El Niño-induced poor rains, prevailing and forecasted economic hardships, (and poor liquidity) will result in limited livelihood options in most areas, but mainly in the south. These include agricultural and non-agricultural labor and self-employment opportunities and other coping options such as petty trade, vegetable production, and sales. Poor liquidity and limited labor (agricultural and non-agricultural) opportunities (against high supply of labor) are expected to result in lower than typical labor rates, reducing potential household incomes and access to food.

Remittances: The South African Rand lost about 30 percent of its value in 2015. Since early 2016 the Rand has recorded some marginal gains (approx. 7 percent). FEWS NET anticipates that the value of the Rand will continue to be low and this will result in reduced remittance levels mainly in the south. Liquidity challenges in the country are also expected to limit remittance flows.

Acute Malnutrition: Typical national and provincial level acute malnutrition rates in Zimbabwe are less than 5 percent. The last nutrition survey (2014 MICS) conducted between February and April 2014 reported a national Global Acute Malnutrition (GAM) prevalence of 3.3 percent. GAM prevalence across all provinces was equally below 5 percent. These indicated “Acceptable” levels of acute malnutrition according to WHO classifications. Since the last survey, poor harvests, limited livelihoods, and high food prices have adversely affected food access and consumption at the household level leading to a deterioration of the nutrition situation. Dietary diversity and consumption will be poor from June through October in the worst drought-hit areas. The situation may somewhat improve from November through January with the improved rainfall forecast for the 2016-17 season, which may improve livelihood options (such as agricultural casual labor) and food access. Ongoing nutrition screening data shows sustained high numbers of severe acute malnutrition since 2014, an indication of a worsening nutrition situation. In the worst drought affected districts where poor or no harvest is expected and where households have lost sources of income, acute malnutrition is likely to exceed 5 percent during the lean season (November-March).

Inter-annual and emergency assistance: This year’s food assistance will act as both inter-annual and emergency assistance in some areas, and as emergency assistance in other areas. FEWS NET factors each type of assistance into the scenario differently. This consumption year’s Lean Season Assistance is expected to be the largest implementer of food assistance to food insecure households across the country given the huge impact of compounding shocks. Since information about the timing and coverage of assistance is still forthcoming, FEWS NET has not fully incorporated emergency assistance into the outlook analysis.

Most Likely Food Security Outcomes

The majority of poor households will experience food access challenges due to limited livelihood options, liquidity challenges, and high food prices. From June 2016 through March 2017, most southern areas will experience Crisis (IPC Phase 3) food security outcomes and emergency assistance will be required to cover survival deficits and to protect livelihoods. There are chances that Emergency (IPC Phase 4) food security outcomes could be experienced in some critical areas due to high survival deficit levels, however the data for current malnutrition and mortality levels do not support these acute food insecurity outcomes. Anticipated normal to above normal rains from November 2016 to March 2016 are unlikely to significantly improve labor opportunities, self-employment, and household incomes. This is because of low/poor crop production this year (for payments from crop sales or in-kind), anticipated lower than average livelihoods and household incomes, compounded by the prevailing and expected liquidity challenges and anticipated poor access to crop inputs (high prices) among other factors. Most households that would typically engage the poor for casual labor may not be able to do so, or will be severely limited. This analysis is consistent with the results of the Household Economy Approach (HEA) outcome analysis conducted by FEWS NET in May 2016.

In the north, between June and September, poor households in traditionally surplus areas will mainly rely on own-produced cereal. Stressed (IPC Phase 2) food security outcomes are expected in these areas during this period since households will be experiencing livelihood protection deficits as casual labor opportunities are so limited. Once households in this region finish their household food stocks and begin to rely on food purchases at local markets (October 2016-March 2017), Crisis (IPC Phase 3) outcomes are expected. This analysis is consistent with the results of the Household Economy Approach (HEA) outcome analysis conducted by FEWS NET in May 2016. Improvements in livelihood options and household incomes from the improved rainfall forecast for the 2016-17 season will result in a few localized areas in the north maintaining Stressed (IPC Phase 2) outcomes.