SACAU's Perspectives on Rising Food Prices

1. THE WORLD BANK - INTERNATIONAL FINANCE CORPORATION - MULTILATERAL INVESTMENT GUARANTEE AGENCY

2. SACAU’s Perspectives on Rising Food Prices Ajaykumar M. Vashee President, Southern African Confederation of Agricultural Unions (SACAU)

3. The Southern African Confederation of Agricultural Unions (SACAU) • Vision: A vibrant, prosperous and sustainable farming sector that ensures food security and contributes to economic growth in Southern Africa. • Mission: To promote the development of strong farmers’ representation in all countries in the region, to support strengthening of member organizations’ capacity to deliver adequate services to their members, and to advance and protect the common interests of national farmers organisations and regional commodity producer organizations in the region and internationally. • Membership: 14 national farmers unions in 10 countries. • SACAU is equally concerned with the negative impact rising prices will have, particularly on poor populations, and on the political/social stability of nations.

4. Origins of the Problem • The phenomenon of rising food prices has its roots in two important historical developments, namely: • (a) A neglect of investment in the agricultural sector as evidenced by declining public expenditure in key infrastructure and services, such as roads, electricity, water, irrigation, information, communication and extension services, • (b) Low incentives to food production as reflected in low prices of agricultural commodities, especially food.

5. The Effects • Crowding out effect: the declining public expenditure in key public-good infrastructure and services has “crowded out” private-sector investment, thereby stifling food production. • Resource allocation effect: low food price incentives have had the effect of allocating private sector investment from food to other more profitable enterprises. • Investment effect: whilst low food prices have benefited the poor in the past, they have not stimulated greater private sector investment in productive capacity, and this has discouraged the uptake of research and other innovations.

6. Other Factors • Increased global demand for food due to increased world populations. • High demand for protein leading to the diversion of food to animal feed. • Political and social instability. • Droughts, floods and related climatic change impacts. • The development of bio-fuels. • Post harvest losses. • Unfair trade arrangements particularly with developed countries. • Cost push factors, such as rapidly rising input costs coupled with surging oil and energy prices.

7. Other Observations • Supply/demand imbalance- fundamentally there is global food supply and demand disequilibrium, leading to price rises. • Shortages tend to create/promote rent seeking behaviour in the supply chain. • Contrary to popular perceptions, the higher food prices have generally not translated into better incomes for farmers. • This has mainly been due to uncompetitive behaviour in the supply chain. • Thus, due to rising production costs, farmers bear the brunt as they continue to receive a small fraction of the consumer price.

8. Farmers’ Concerns/Fears • Governments may resort to desperate or quick fix measures. • Governments are urged to resist the temptation of introducing negative interventions such as price controls, export bans, food aid approaches that displace local production and distorts local markets, production caps and import bans. • Such measures will further harm the goose that lays the golden egg. • Political and social pressure may force developing countries into accepting loans from bilateral and multilateral agencies on terms that are not favourable. • Lending agencies should not profit from this adversity.

9. Solutions • Key issue- addressing supply-side constraints. • Ensuring fair rewards for farmers to enable them to invest in the necessary technological capabilities. • Involvement/participation of farmers’ organisations and other stakeholders in the crafting of solutions to the problem. • Increased public expenditure, in line with the Maputo declaration of at least 10% national budgetary allocation to agriculture and 6% annual growth in the agricultural sector.

10. Solutions (cont’d) • Sound and predictable macro-economic policies, including investment-friendly land tenure arrangements. • Political and social stability. • Adoption of food aid approaches that are sensitive to local production and markets. • Increased availability of and access to concessionary credit and grants. • Well functioning commodity and input markets. • Removal tariff and non-tariff barriers to enable food to move from surplus to deficit areas, and establishment of related information support systems.

11. Solutions (cont’d) • Removal of production caps. • Better governance/increased transparency in the supply chain (from farm to fork) through monitoring and enforcement of competitive behaviour to ensure fair pricing and distribution of benefits. • Increased disposable income, and the introduction of measures to help the poor cope with the problem. • Targeted technological research and innovations, such as developing risk management tools to deal with climatic changes. • A regional approach to food security management.

12. Conclusion • Current situation- an opportunity for farmers to invest in their productive capacities and to improve their competitiveness in order to boost supply in food production. • It also gives an opportunity to reduce poverty for millions of smallholder farmers and to meet the MDG for rural poor which constitute more than 75% of the population in most countries in the region. • Increased supply will ultimately result in the stabilisation of prices. • Adjustment time lag- response will largely depend on the speed with which the above measures are implemented.