However, in recent months, world food prices have fallen almost as rapidly as they had risen
in late 2007 and early 2008, yet as is demonstrated in this report, domestic food price levels
in many eastern and southern African markets are not closely tracking world prices.
Fertilizer prices remain at unprecedentedly high levels and may have a critical influence on
future food production levels in the region. Against this backdrop, there is an urgent need for
information about how the current food situation is unfolding in the region, the immediate
policy response options, and the longer-term challenges and opportunities.
This study has three objectives: 1) to examine the impact of recent world food price changes
on domestic maize and fertilizer prices in the region; 2) to assess possible changes in
cropping patterns, national food production, and consumers’ access to food in light of these
price movements; and 3) to consider the implications for policy and program response by
governments, donors, and the private sector.
The report highlights seven main findings:
1. While world and South African maize prices have plunged precipitously between August
and December 2008, this decline has not been reflected at all in the eastern and southern
African markets examined. In parts of the region, most notably Malawi, maize prices are now
substantially higher than the cost of importing maize from South Africa, yet imports are not
occurring. While the rise in world food prices had an undeniable impact on maize prices in
the region up till mid-2008, the continued rise in food prices in countries such as Malawi and
Zambia during the latter half of 2008 are primarily due to local policy-related factors.
2. When examined in real local currency units, maize prices in 2008 vary considerably
across countries. In Malawi and Mozambique, maize prices are at or near historic highs in
inflation-adjusted terms. In Kenya and Zambia, by contrast, retail maize meal and bread
prices in inflation-adjusted terms have declined gradually for the past 15 years, due to
reductions in maize marketing and milling costs over time associated with market
liberalization. There has been an upturn in real maize prices in Kenya and Zambia from late
2007 to mid 2008, but even during this period real prices were no higher than their mean
levels over the past 15 years.
3. There is some evidence of a potential food crisis emerging in Zambia and possibly Malawi
in early 2009, not because of world food price levels, but because of potential physical
shortages, which are likely to send maize prices sharply higher over the coming months. In
both countries, national maize supplies may be depleted before the 2009 harvest and maize
imports may be required to avoid rationing of government stocks. Maize retail maize grain
prices in both Zambian and southern Malawian markets, as of December 2008, are in the
range of US$500 per ton or higher. Despite the gains in consumer welfare that would result
from importing maize at this time, the issuing of licenses for maize importation has only been
given in Zambia since December 2008 and has still not occurred in Malawi as of December
2008.
4. Opportunities to relieve maize deficits in the region and partially stabilize prices are
being hindered by barriers to regional trade. Regional trade could be playing a larger role in
delivering maize supplies to areas of the region where prices have escalated the most.
Zambia, Malawi, and Tanzania have all imposed export bans or trade restrictions on maize
over the past 24 months to protect domestic supplies. Another major impediment to private
sector maize importation is the threat that government will import and release its stocks at
prices below the cost of importation. Because such a move could impose large financial
losses on traders, consultation and trust between the public and private sectors is needed to
effectively avert the potential for food crises during times of national production shortfalls.
5. Events in 2007 and 2008 are underscoring the crucial importance of timely crop
production and market information systems. It is becoming increasingly clear that national
crop estimates in some countries are unreliable. Price stability in the region requires accurate
crop forecasts so that other plans, such as export volumes, quantities to be purchased by the
World Food Programme through local and regional purchase operations, and state marketing
board purchases and stock releases, can be made without having unexpected effects on prices.
A clear example how inaccurate crop production estimates can exacerbate food insecurity is
the case of Malawi in 2007/08. On the basis of the Government’s forecast of a record maize
harvest in 2007 and a projected maize surplus of 1.2 million tons over national consumption
requirements, the government contracted with other states in the region to export over
400,000 tons of maize. However, the government was only able to source some 300,000 tons
and this sent the price of maize rocketing to levels seen only in the most severe drought years.
In hindsight, it is widely believed that the 2007 Malawi harvest was overestimated by at least
25%. If the government had been able to produce a more accurate estimate of crop
production, it might not have arranged to export maize, which in turn might have avoided the
huge price surge in late 2007/early 2008 which caused great hardship for maize buying
households.
6. There will almost definitely be a major drop in fertilizer use on staple food crops in the
region in 2008. Relatively low maize-fertilizer price ratios in 2008 are likely to produce
several unwelcome outcomes: (a) less fertilizer used on maize and other crops in the coming
cropping season; (b) lower maize yields and production, other factors constant; (c) continued
upward pressure on maize prices, even in countries that so far have not experienced major
price increases; and (d) a possible shift in area out of crops that require heavy fertilization for
profitability and into crops that are profitable even at low or no fertilizer use (e.g., a partial
shift into roots and tubers at the expense of maize in the mixed cassava/maize zones, and a
shift out of fertilizer-intensive cash crops such as tobacco and tea). The impact of lower
fertilizer use on maize production and marketed supplies will be most discernable in
countries that make relatively intensive use of fertilizer such as Kenya and least so in
countries where fertilizer use on maize is negligible, such as Mozambique.
7. High fertilizer prices in 2008 are likely to contribute to high food prices in 2009 in the
region, even if world food prices continue to decline. On the surface, it may be expected that
the rapid decline in world food prices since mid-2008 should start to put downward pressure
on maize prices in eastern and southern Africa. However, to the extent that very high
fertilizer prices cause a major reduction in fertilizer use and maize production in the region,
the price surface in many parts of the region may remain at import parity levels throughout
much of 2009.
8. The main implications for governments and donors are that the fundamental priorities
that have always been the major drivers of agricultural productivity growth and food security
remain front and center today. While high food prices are in some quarters being perceived
as a “crisis”, in the long run, higher average food prices may bring major opportunities to
attract investment in food production and marketing in the region to expand agricultural
growth. However, exploiting these opportunities will require a hospitable and predictable investment climate, and moving toward this hospitable investment climate will require some
governments in the region to adopt more stable, predictable and transparent behavior in food
and input markets.
It is encouraging to note that African governments and international organizations have
recently concurred about the importance of agriculture as a strategic sector and have pledged
to “adopt sound policies for agricultural and rural development, and committed themselves to
allocating at least 10% of national budgetary resources for their implementation within five
years” according to the 2003 African Union Maputo Declaration. So far, only six countries
have reached or surpassed this 10% level. Ensuring renewed commitment to these pledges to
agriculture, especially in an environment of higher average food prices over the coming
years, remains a strategic priority.
Governments in the more developed countries also have a crucial role to play, first by
providing greater support for investments known to have high long-term payoffs for
smallholder agriculture; second, by being receptive to changing their own agriculture and
trade policies that create an unlevel playing field in world markets; and third, to reassess
energy policies that may exacerbate food insecurity in low-income countries.