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A Jekyll and Hyde food price index

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FAO's usual winsome twosome, the food price index and food commodity price index charts.

FAO’s usual winsome twosome, the food price index and food commodity price index charts.

Why does the perversity of international food price monitoring continue when all evidence tells us food price inflation is raging just as it was in 2007-08? Here is an example of how persistent this perversity is.

Maize in Malawi at 280%, maize in Tanzania at 110%, maize in Mozambique at 60%, maize in Zambia at 50%. Wheat in Tajikistan and in Russia at 55%, wheat in Kyrgystan and Afghanistan at 40%, rice in Myanmar at 35%. Maize in Haiti at 55%, maize in Honduras at 40%, wheat and rice in Brazil at 30%, maize in Nicaragua at 30%, rice in Bolivia at 25%.

Those are the annual increases in the prices of these cereals in the countries named. The estimates come from the charts found in the FAO Global Food Price Monitor for 2013 May (which has prices for up to April). The charts however are at the end of the Monitor. On the first page, the Monitor offers very short summaries. Like this one:

“In Eastern Africa, maize prices mostly strengthened for the second consecutive month following seasonable patterns. However, prices stabilized or started to decline in some countries where new harvests are about to start.” Is that what is being described with a 110% increase in Tanzania?

Or this one:

“In Asia, domestic prices of rice and wheat generally weakened with the arrival of the 2013 early season rice and winter wheat harvests.” Is that what is being described with a 35% increase in Myanmar?

Or even this one:

What FAO's own charts tell us about rising food prices for staples worldwide. These are from the FAO Global Food Price Monitor for 2013 May.

What FAO’s own charts tell us about rising food prices for staples worldwide. These are from the FAO Global Food Price Monitor for 2013 May.

“In Central America, maize prices strengthened in April with the onset of the lean season and in some countries were at high levels. Bean prices remained low, pressured by abundant supplies from bumper crops in the 2012-13 cropping season.” Is that what is being described with a 40% increase in Honduras?

Who are these summaries really for and why does FAO persist in releasing to the public these misleading pictures of food prices (when it means export prices), and especially when its own price monitoring tools tell us very clearly that many many people are struggling under crushing inflation in the prices of food staples?

To take the food price opera further, this is what the FAO Food Price Indexwhich is one of the world’s primary indices and referred to thousands of times a day by planners, the food industry, policy-makers, bankers (always bankers), commodity traders, foreign exchange brokers, bond market artists and rogues, warehousing tycoons, the purveyors of genetically modified seed, the cigar-smoking CEOs of grain trading companies, and the smarmy corrupt political cronies of all of the above – says about cereals:

“The FAO Cereal Price Index averaged 234.6 points in April, down 10 points (4.1%) from March, but nearly 11 points (4.9%) above the corresponding period last year. Most of the decline in April was triggered by weaker maize prices on expectation of higher closing stocks and favourable 2013 crop prospects. Wheat prices changed little, as the downward pressure stemming from expectation of larger inventories was offset by the upward pressure resulting from concern over the poor growing conditions and spring crop planting delays in the United States. Rice prices were marginally down …”

Read that again, 4.9% above the corresponding period last year. The smallest of the annual percentage increases in the second paragraph of this posting is five times as much as 4.9% which is why we must ask FAO, again and again, who the beneficiaries of this large international effort to collect and distribute food prices really are.

Not the populations of Mzuzu, Kampala and Milange or Jalalabad, Yangon and Sughd, or Tegucigalpa, Sao Paulo and Jacmel, all of whom must find their own means of measuring the burdens of food price increases, and who have in the last year, cut down on health care and perhaps even the education of their children, only to not go hungry too often, too painfully.

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Global farmland grab and the shadow of the Soviet kolkhozes

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Peasant girl with rake, 1930s, Simon Fridland

Peasant girl with rake, 1930s, Simon Fridland

The World Bank has just released an interesting document called ‘Rising Global Interest in Farmland: Can it Yield Sustainable and Equitable Benefits?’. It is presented as a response to the global farmland grab, reviews global trends of land expansion as well as empirical evidence on land acquisitions in 14 countries between 2004 and 2009: Brazil, Cambodia, Democratic Republic of Congo, Ethiopia, Indonesia, Liberia, Lao PDR, Mexico, Mozambique, Nigeria, Peru, Sudan, Ukraine, and Zambia. (I’ll post more on the study as soon as I can read it fully.)

The inclusion of Ukraine is interesting, primarily because of the country’s long history (as a Soviet republic) of collective farming, and also because of the horrific famine that engulfed Ukraine, the northern Caucasus, and the lower Volga River area almost 80 years ago, in 1932-1933, was the result of Joseph Stalin’s policy of collectivisation. This is also part of the region which suffered in the July 2010 fires that traumatised Russia.

The Bank’s study contains a few paras about the Soviet farming system which are worth reading closely, for they help explain the current wheat shortage in Russia and the responses of both Russia and Ukraine to the continuing wheat crisis.

Woman Collective Farmer, 1932, Simon Fridland

Woman Collective Farmer, 1932, Simon Fridland

Eastern European countries have undergone major transitions from the former Soviet system of collective and state farms to new agrarian structures (says the Bank’s section on Russia). These transitions have unfolded in many ways depending on countries’ factor endowment, the share of agriculture in the overall labour force, infrastructure, and the way the reforms were implemented. In areas of low population density, where collectives were divided into small plots allocated to members, the plots were quickly rented back by companies with access to finance and machinery.

These companies were often created from former collective farms whose managers could more easily consolidate land parcels and shares. Services, institutions, and logistics were geared to large-scale production, so smallholder grain production was never viable option. Where farms were land- and capital-intensive, corporate farming was the dominant organisational structure. On the other hand, many countries where land was split up into smallholder farms also performed well. The diversity is illustrated by the share of area under corporate farms 10 years after the transition, ranging from 90 percent in Slovakia, 60 percent in Kazakhstan, 45 percent in Russia, to less than 10 percent in Albania, Latvia. and Slovenia.

In Russia, Ukraine, and Kazakhstan, the transition was associated with a 30 M ha decline in area sown, with most of that area returning to pastures or fallow. Large farms were better able to deal with the prevailing financing, infrastructure and technology constraints. Aided by the phasing out of an inefficient meat industry and the associated demand for grain as feed, the region turned from a grain deficit of 34 mt in the late 1980s to exports of more than 50 mt of grain and 7 mt of oilseeds and derivatives. In light of the scope for transfer of available technology, Russia, Ukraine and Kazakhstan, the region’s three land-abundant countries, have an opportunity to establish themselves as major players in global grain markets, especially if ways to effectively deal with volatility are found.

Farmer's first Spring. The Soviet region of Nizhnegorodsk's District, 1929, Arkadi Shishkin

Farmer's first Spring. The Soviet region of Nizhnegorodsk's District, 1929, Arkadi Shishkin

Given the slow development of markets, mergers to integrate vertically to help acquire inputs and market outputs led to the emergence of some very large companies. For example, in Russia, the 30 largest holdings farm 6.7 million ha, and in Ukraine, the largest 40 control 4 to 4.5 million ha. Many of the agricultural companies are home grown, though often with significant investment from abroad. Several have issued IPOs.

Some Western European companies have also invested directly in large-scale farming in the region. For example, Black Earth, a Swedish company, farms more than 300,000 ha in Russia. With greater demand and better logistics, there remains substantial potential for intensification and in some cases for area expansion. Cereal yields increased 38 percent from 1998-2000 to 2006-2008 but are still far below potential. For example, Ukraine’s cereal yields are 2.7 t/ha, some 40 percent of the Western European average. The potential to transfer technology and relatively cheap land has been one of the major motivations for foreign direct investment in the region.

In Russia land is either leased or owned, and in Ukraine. where private land sales are not allowed, all land is leased. usually for 5-25 years. But throughout the region, land rents are still very low relative to land of comparable quality in other parts of Europe. Competitive markets for land shares have yet to emerge. and in many situations imperfections in financial and output markets preclude own-cultivation as a viable option. So the bargaining power of landowners is often weak, suggesting that rental rates are low and that owners receive few of the benefits from large-scale cultivation.

Why drought and hunger in Africa spells opportunity for global agri-tech

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Agriculture in Africa. Photo: FAOClimate change is leading to more intense drought conditions in Africa. Small and marginal farmers, pastoralists and nomadic communities are the most vulnerable and the hardest hit. Already. aid agencies have warned that 10 million people are already facing severe food shortages, particularly in the landlocked countries of Chad and Niger, after a drought led to the failure of last year’s crops. As many as 400,000 children are at risk of dying from starvation in Niger alone, according to Save the Children.

The Independent of Britain has reported that unusually heavy rains have washed away this year’s crops and killed cattle in a region dependent on subsistence agriculture. Organisations including Oxfam and Save the Children say that the slow international response to the emergency means that only 40 per cent of those affected are receiving food aid. As many as four out of five children require treatment for malnutrition in clinics.

Against this grim new news, the global agri-technology networks are readying plans to use possible food shortages to push new structures of seed, funding and conditions onto countries looking for quick fix solutions. One such programme ia the Comprehensive Africa Agriculture Development Programme (CAADP) which has announced that it received a major boost as several countries have begun drawing on funds from a US$22 billion pledge made by the G8.

Agriculture in Africa. Photo: FAOUnder CAADP, African governments are committed to increase their national budget expenditure on agriculture to at least 10 percent. The Programme, agreed by heads of state at the 2003 summit of the African Union, expects a six percent growth rate in agriculture every year. What part of this growth will meet the needs of the drought-hit people in Chad and Niger is not discussed.

Close behind is the International Maize and Wheat Improvement Center (known by its Spanish acronym CIMMYT, one of the CGIAR centres) which has used the alarming food situation news as a prop on which to announce a study which it says “finds widespread adoption of recently developed drought-tolerant varieties of maize could boost harvests in 13 African countries by 10 to 34 percent and generate up to US$1.5 billion in benefits for producers and consumers“. Who will these producers and consumers be?

The study was conducted as part of the Drought Tolerant Maize for Africa Initiative (DTMA) implemented by CIMMYT and IITA with funding from the Bill & Melinda Gates Foundation and the Howard G. Buffett Foundation. CIMMYT and IITA have said they “worked with national agriculture research centers in Africa to develop over 50 new maize varieties that in drought conditions can produce yields that are 20 to 50 percent higher than existing varieties”. There is no mention of Africa’s immense wealth of traditional cereals or the communities that have guarded and used old growing knowledge in difficult times.

Agriculture in Africa. Photo: FAOFinally, from August 30 to September 4, Namibia hosted the annual Food, Agriculture and Natural Resources Policy Analysis Network (FANRPAN) Regional Food Security Policy Dialogue, where over 200 policymakers, farmers, agricultural product dealers, scientists and non-governmental organisations from across Africa and the world gathered “to address African priorities on climate change and its impacts on food security, agricultural development and natural resource management”.

The tone and tenor is astonishingly upbeat, especially considering the dreadful food situation and climate change news that’s now coming out daily from central, eastern and north Africa: “Increasing the collaboration between public and private sector organisations can also help build infrastructure, secure better access to natural resources, improve the distribution of agricultural inputs and services, and share best practices. The Farming First coalition is a successful example of farmers, scientists, engineers, industry and agricultural development organisations coming together to push for improved agricultural policies which benefit farmers while safeguarding natural resources over the long term.”

FANRPAN has cited two reports by consulting firm McKinsey and Company which have (1) estimated that Africa produced only 10 percent of the world’s crops despite representing a quarter of land under cultivation and (2) noted that 60 percent of the world’s uncultivated arable land lies in Africa with the potential for African yields to grow in value more than three-fold by the year 2030, from US$280 billion today to US$880 billion.

Agriculture in Africa. Photo: FAOThose extraordinarily large sums may explain why FANRPAN is currently working in partnership with the Rockefeller Foundation “to improve food security throughout sub-Saharan Africa by promoting the understanding of climate change science and its integration into policy development and research agendas”. FANRPAN said it is also working with the International Food Policy Research Institute (IFPRI) – a study cell based in Washington, USA, whose research objectives have tended towards international agricultural trade in recent years. A recent collaboration is called ‘Strategies for Adapting to Climate Change in Rural sub-Saharan Africa: Targeting the Most Vulnerable’ which says it recognises the interrelated impact of climate change on household poverty, hunger and food security.

No doubt, but these high-minded statements of objectives come bundled with some decidedly commercial conditions. As IPS news reports, there are conditions attached to how countries will be accessing CAADP funds. Countries will need to have gone through the CAADP process, which includes designing a “national investment plan” which contains detailed and fully-costed programmes and signing a “CAADP compact”. This is nothing but an agreement between the government, regional representatives and “development partners” for “a focused implementation of the programme”. Moreover, the investment plans will have to undergo “an independent technical review” and the plan should also “have been tabled before a high-level CAADP business meeting” before funds are allocated. Which simply means that there are only so many ways the money can move.

Agriculture in Africa. Photo: FAOFor all these noble programmes, the countries in their sights are: Angola, Benin, Ethiopia, Ghana, Kenya, Malawi, Mali, Mozambique, Nigeria, Tanzania, Uganda, Zambia and Zimbabwe. The aid agencies on the ground are warning again what they have said last year, the year before, five years ago, a decade ago. “After six months without proper nutrition, these children have little resistance to disease,” said Severine Courtiol, Save the Children’s Niger manager. “There is little children can do to avoid coming into contact with this contaminated, disease-ridden floodwater. That’s why it’s critical we make sure they get enough food so they are strong enough to fight off and recover from sickness.”

Robert Bailey, Oxfam’s west Africa campaigns manager, said that some food was available in marketplaces in Niger, but was too expensive for ordinary households to afford. As a result, many were reduced to eating leaves and berries. Chad and parts of Mali were also affected, he added. “The international donor response has been too little too late. We estimate that 7.9 million people are affected by food shortages in Niger, with only 40 per cent receiving international aid. The other 60 per cent are dependent on the government and NGOs [non-governmental organisations]. But the government has no food.”