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Agri investment key to blunting price shocks

By Pauline Bax
25 May 2010

Africa is not safe from future price shocks unless investment in agriculture is stepped up, analysts said this week – although a repeat of the 2008 food crisis is unlikely

Africa is not safe from future price shocks unless investment in agriculture is stepped up, analysts said this week – although a repeat of the 2008 crisis, when food commodities prices hit peak levels and millions of people in Africa were threatened with acute hunger, is unlikely.

Aly Abou-Sabaa, director of agriculture and agro-industries of the AfDB, said in an interview on Wednesday: “In general, we’ve seen a reduction in food prices, but they are still high compared to earlier levels, and still above the affordability level of low-income populations. Even the price of fertilizer is still much higher than before the crisis.”

Sustained high food prices can heighten political instability, especially in food importing countries already weakened by conflict, others warned.

Economist Jean-Philippe Stijns of the OECD Development Centre said: “The increase in food prices is a trend that could derail the recovery and create social tension over time.”

In 2008, poor harvests, high fuel costs and soaring demand for food commodities from China and India caused a dramatic hike in food prices in 2008, prompting strikes and riots in several African countries.

Governments responded quickly with fuel subsidies, export bans and a reduction of customs fees to ward off social tension, but these measures absorbed significant amounts of foreign exchange and continue to place pressure on government expenditures to this day.

Favourable weather and slower economic growth in Asia has eased the pressure on food commodities in the world market, and food and energy prices have dropped since reaching peak levels.

However, in most African countries prices are expected to remain high over the medium and long term, the UN Food and Agriculture Organization (FAO) said in a report published earlier this month.

“The cost of the typical food basket is now some 80% more than what it was in 2002,” the report said.

Donor countries widely agree that a policy shift towards renewed investment in agriculture can boost food commodities production in Africa. The global context should serve as a “wake-up call” for immediate action, according to the FAO.

“There is a particular opportunity to dramatically increase smallholder productivity and production,” it said in the report.

But there are many underlying structural problems that hold back the development of the sector, Abou-Sabaa at the AfDB said. “The greatest challenges for African countries are poor rural infrastructure, lack of access to markets, and low prices paid to farmers at the farm gate.

“Other major constraints are issues of land ownership and a lack of sustainable resources of irrigation water.”

At the height of the food crisis, the AfDB released funds for fertilizers to help produce crops as fast as possible while some countries received budget aid to cope with increased food imports. Even though the pressure has eased, Abou-Sabaa said the “sense of instability” remained.

By Pauline Bax
25 May 2010