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Food-price surge ‘undermining Africa’s growth’

Johannesburg – A severe drought in southern Africa has triggered a surge in food prices, preventing central banks from loosening monetary policy to spur economic growth.

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Central banks in South Africa, Zambia and Mozambique have been forced to raise interest rates to rein in inflation after the El Nino-induced drought crippled the production of the staple maize and other crops, pushing up food prices, despite dismal economic growth prospects.

South Africa’s central bank forecasts Africa’s most industrialised economy to grow by 0.6 percent this year, after expanding 1.3 percent in 2015, partly hobbled by the drought and low commodity prices.

The bank has hiked rates by a cumulative 200 basis points since January 2014 to bring inflation within its target band of between 3 and 6 percent.

Sanlam economic advisor Jac Laubscher said by leaving the benchmark rate at 7 percent at its policy meeting last month, the bank was trying to strike a balance between fighting inflation and not depressing already weak economic growth.

“This time around they opted for growth, while at the same time making it clear that the decision to keep the repo rate unchanged should be viewed as a mere pause,” Laubscher said.

Inflation stood at 6.2 percent in April, but food inflation rose to 11.3 percent compared with 5 percent in the same period last year. The central bank sees food inflation peaking at 12 percent in the final quarter of 2016.

“This tightened monetary policy stance unfortunately comes at a time of very lacklustre economic growth,” said Hanns Spangenberg, an economist at NKC African Economics. “However, the central bank cannot let expectations for inflation anchor at levels above the upper range of its target range.”

Also of concern was a weaker rand, which has depreciated 26 percent to the dollar since January 2015. The currency is vulnerable to possible downgrades to South Africa’s credit rating and higher US interest rates.

In Zambia, Africa’s no.2 copper producer, the benchmark lending rate is at a record 15.5 percent as the central bank fights higher inflation, which stood at 21.3 percent in May compared with 6.9 percent in May 2015.

“The cost of maize has gone up significantly and that is fuelling inflation,” Zambia’s Deputy Finance Minister Christopher Mvunga said. “Unless we are food sufficient, central banks will struggle.”

Zambia’s central bank expects inflation to average 8.7 percent in the fourth quarter of 2016, but analysts say the target was too ambitious.

“It is very difficult to attain single digit inflation because our currency has been depreciating and most of the goods that we consume are imported,” said Lubinda Habazoka, an economist at the Copperbelt University.

Weaker copper prices have put pressure on Zambia’s currency and the economy. The government expects the economy to grow by 3.7 percent this year against 3.5 percent last year.

Higher food prices have also pushed up annual inflation in Mozambique, which faces an imminent sovereign debt default.

Inflation stood at 17.29 percent in April after prices rose by 1.98 percent in April 2015.

The central bank lifted its benchmark lending rate by 200 basis points to 12.75 percent in April, saying it was concerned about pronounced inflation risks caused by the drought and the sharp depreciation of the currency.

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Will Climate Change Actually Help Crops?

As climate change brings unpredictable weather, droughts, floods, heat waves, cold spurts, and a general sense of chaos to the world of agriculture (and, well, the world, in general), one element is a little more mysterious.

Researchers from around the globe, led by Delphine Deryng, an environmental scientist at Columbia University, took a look at one curious element amongst all the disaster. Increased carbon dioxide levels are heavily associated with climate change, and it’s certainly no shocker that carbon dioxide levels are rising due to all kinds of human activities. But plants, we all learned in elementary school, actually love carbon dioxide: They take it in and expel oxygen, right? So does that mean, even if plants can’t save us, that at least they’ll be happy?

It turns out: sort of! An explanation of how this works, from the study’s release:

The concept is relatively simple; plants take in carbon to build their tissues, and if there is more carbon around, they have an easier time. Leaves take in air through tiny openings called stomata, but in the process the stomata lose water; with more carbon available, they don’t have to open up as much, and conserve moisture.

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The study takes into consideration an excess of carbon dioxide in the air and tries to figure out how that would affect the planet’s four main crops: maize, wheat, soy, and rice. This turns out to be more about water than a simple more-carbon-dioxide-means-more-yields connection; the study finds that all four crops will take in more carbon dioxide and use water more efficiently by 2080, but not that we will necessarily see higher yields.

According to these calculations, the study predicts that wheat fields fed by rain, including those in North America, could defeat increased heat and water scarcity stress and actually produce more yields. Irrigation-fed wheat, as in China and India? Nope—still screwed. Corn yields will decrease everywhere, and the jury’s still out on rice and soybeans (the study found that some projections show an increase and some show a decrease).

This study is not, of course, saying that climate change will be good for crops. The inherent unpredictability of the change makes it exceedingly difficult to expect much of anything to go right, let alone to predict it. But it is demanding that we look at all possible effects of climate change, and take note that this is all much more complex than “the planet is heating up.”

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Study Reveals Organic Farming Is Financially Sustainable Around the World

A recently published meta-analysis of 44 scientific studies shows that organic farming is not only environmentally sustainable, but also financially competitive when compared to conventional farming. Organic sales grew 170 percent to US$63 billion from 2002 to 2011 worldwide, but the analysis’s authors note that organic agriculture currently occupies only 1 percent of global cropland. The good news is that there is room for organic agriculture to continue to spread, and the authors predict that profitability of organic farming will continue to outpace conventional models.

According to David Crowder, a co-author of the study, other meta-analyses of organic agriculture have focused mostly on yields. “But yields are really just one component of the actual economic performance of an organic-farming system,” Crowder says. Crowder jointly designed the research with a colleague, John P. Reganold, at Washington State University. M. S. Swaminathan of the Centre for Research on Sustainable Agriculture and Development in Madras, India, reviewed the paper.

Through a literature survey and data analysis, the study appraised the financial performance of 55 crops grown in 14 countries on five continents. The data included in the review spanned 40 years of production, representing a long-term analysis of the financial sustainability of organic farming. According to the authors, many factors can affect the profitability of organic farming, including crop yields; labor costs; price premiums for organic products; potential for reduced income during a transition period from conventional to organic production; and potential cost savings from the reduced use of nonrenewable resources and purchased inputs. The cost-benefit analyses incorporated all of these factors, and the authors concluded that organic agriculture is more profitable than conventional agriculture.

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Organic price premiums are part of the reason that growth in sales has outpaced growth in organic land area. In the United States, consumers of organic produce pay a typical premium of 32 percent over conventionally grown produce. But the researchers found that even if premiums fall to lower levels as sales continue to grow, organic agriculture will likely keep its competitive edge due to consumer demand.

The authors note that the labor costs of organic farming are higher than conventional farming due to the need for mechanical pest control, creative approaches to marketing and selling of organic products, and labor-intensive practices such as weeding. However, the cost-benefit analyses provided by the study show that the economic benefits of farming organically offset these costs, such that organic farming is more profitable overall—the price premiums and the lowered need for costly pesticide and fertilizer inputs make up for these higher labor costs around the world.

Furthermore, the authors contend that the labor-intensive nature of organic farming has the potential to revitalize rural economies, providing an added economic benefit outside of the farm-level scope of the analysis. Organic farming can redistribute resources in rural areas and promote economic stability through job creation, according to the authors’ conclusions.

The study separately analyzed diverse farming systems, because many organic farmers depend on more than one crop for a steady source of income. The review therefore went beyond past analyses in examining the effects of diversity on farm profits by looking at the whole cropping system, rather than individual crops.

However, the study was not able to examine the economics of ecosystem services, which may favor organic models over conventional models as well. Organic models are more likely to utilize ecosystem services such as biological control of pests and nitrogen mineralization, which may add to the intrinsic value of organic crops. Therefore, the overall economic value of organic farming systems may be even higher than the authors estimate when the true values of all aspects of the system are considered. Price premiums may serve as a proxy for the valuation of ecosystem services, but are unlikely to make up for the full costs of producing conventional crops.

Finally, the study revealed that a three-year transition from conventional to organic farming represented the most risky period for a farmer financially. The authors found lack of price premiums during this period the most significant limiting factor of profitability. One important takeaway from the analysis is the need to support beginning farmers and farms transitioning from conventional to organic.

source: foodtank


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