Ghana won’t be hard hit by global food price hikes – RenCap
In the year 2008, the world was hit by a food crisis that sent food prices high, and in 2011, there is another major food price hike that is expected to hit some countries hard, most of these in sub-Sahara Africa (SSA), but Ghana and Nigeria will be least hit, says Renaissance Capital (RenCap) in a report copied to ghanabusinessnews.com.
According to the investment bank which is focused on emerging markets of Russia, Eastern Europe, Central Asia and Africa the dynamics in the price hikes is what would make Ghana escape the problem.
The global food price hikes in 2008 affected three main cereals, RenCap says – and these are maize, rice and wheat. The price of rice, it says increased most, tripling during the year to April 2008 and peaking at $1,015 per tonne.
According to RenCap, however, the reason why some countries in West Africa were hard hit by the 2008 food crisis was because rice accounts for a significantly larger share of food consumption in these countries.
For instance, at the beginning of 2008, the World Bank estimated that 33 countries of the world faced potential social unrest because of rising food and energy prices. Some African countries experienced very difficult times. Countries such as Cote d’Ivoire, Egypt, Togo, Cameroon and Bourkina Faso all experienced social unrests leading to the loss of lives and injury to citizens in some cases.
But throughout those times, Ghana was fortunate to have escaped any major social backlash as a result of the rising cost of food.
In response to the food crisis in 2008, the President of the World Bank, Robert Zoellick was compelled to admit that the top priority in addressing the challenge was to give the UN World Food Programme an extra $500m for emergency food aid.
Former US President George W. Bush, at that same time also ordered the release of $200m in emergency aid to alleviate food shortages in Africa and other parts of the world.
In Ghana itself, former President Kufuor cut taxes to cushion the effects on citizens.
The fear at that time was that about 100 million people of the world would be pushed further into poverty and malnutrition, unless something drastic was done to address the food crisis.
The crisis however, in 2011 according to RenCap has to do with the rising cost of maize. According to the bank, in 2011/2012, it is the price of maize that is projected to surpass other cereal prices and hit new highs.
Maize makes up 37% of sub-Sahara Africa’s (SSA’s) total cereal consumption, and maize consumption is even more important for countries in Southern and Eastern Africa. These countries are projected to be among the most affected in the region by the rise in global cereal prices, as will be SSA’s biggest importers of cereal.
The price of maize doubled in the year to April 2011 to $319/tonne as stocks fell, which in turn put upward pressure on the wheat price to increase by 74% over the same period to $336/tonne. Significantly, the price of rice moved sideways in the year to April 2011.
In February 2011, World Bank President, Robert Zoellick told the Reuters news service that the world faces a broader trend of increasing food and commodity prices and more countries should wake up to the need to curb price volatility.
“We are going to be facing a broader trend of increasing commodity prices, including food commodity prices,” Zoellick told the news wire.
He told Reuters that the rise in food prices can put pressure but also create opportunities, noting that developing nations could boost revenues by increasing food production to meet rising global demand.
The Reuters cited him as saying that increased consumer demand, especially for sugar and meat, in fast-growing emerging economies was a major factor pushing prices higher compared with the 2007/2008 crisis.
Zoellick said the Food Price Index of the U.N. Food and Agriculture Organization, or FAO, which measures monthly prices changes for a food basket of cereals, oilseeds, dairy, meat and sugar, showed food prices surging to above 2007/08 levels.
RenCap however, says countries to be hard hit by the current global food crisis are, Zimbabwe, Kenya and Ethiopia.
“The least affected countries will include Nigeria and Ghana,” it says.
In RenCap’s view major drivers of food prices are drought-like conditions in the world’s three major cereal producers, the US, China and the EU.
Moreover, it says this supply bottleneck is happening at a time when demand for food is growing sharply, due to changing diets in rapidly-growing developing and emerging market economies, and biofuel policies in industrialised countries that are diverting food crops to ethanol and biodiesel production.
Analysing the situation RenCap says, given East Africa’s energy import dependency (which is already weakening the shilling), this suggests that the Central Bank of Kenya (CBK) will have to move faster, or risk inflation reaching the high teens – our base case is average annual inflation of 14%, with an interest rate of 7% at year end 2011.
Zimbabwe will suffer on the current account side given its high level of food imports (7% of GDP in 2009).
“For Nigeria and Ghana, we think the central banks can be more relaxed, and we assume interest rates will end 2011 at 9.0% and 13.0%, respectively. If global maize and wheat prices rise in 2011-2012, we recommend that investors sell Kenya and buy Nigeria,” it says.
Meanwhile, in October 2010, Mr Kwesi Ahwoi, Ghana’s Minister of Food Agriculture,was reported by the GNA to have said that although the country is self-sufficient in the production of staple foods it is deficient in the cultivation of cereals.
“We produce 35 per cent of our rice requirement, 90 per cent of maize. 50 per cent of our cereal requirement and 30 per cent of the raw materials needed for our agro-based industries,” the report cited him as saying.
By Emmanuel K. Dogbevi