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Surging prices an opportunity for Africa

By Vision Reporter

Added 23rd April 2008 03:00 AM

Farming in Africa has always been a risky business, at the mercy of bad weather, droughts, low productivity, bad politics and non-remunerative, fluctuating farm product prices.

Farming in Africa has always been a risky business, at the mercy of bad weather, droughts, low productivity, bad politics and non-remunerative, fluctuating farm product prices.

By Dick Kamuganga

Farming in Africa has always been a risky business, at the mercy of bad weather, droughts, low productivity, bad politics and non-remunerative, fluctuating farm product prices.

Thus, the continent has long been confined into exporting primary commodities which face volatile prices and unfavourable terms of trade relative to other traded goods. However, the recent surge in commodity prices could be changing the face of commodity trade and its fundamentals.

The rise in prices of a number of commodities is predicted to continue in future. This should be good for Africa, its households and policy makers. It is the right moment to prioritise modernisation of agriculture as a tool to fight poverty and achieve the Millennium Development Goals by 2015 by taking advantage of the global price incentives to boost household incomes.

The recent food price increases has been predicted as doom and gloom for the continent. However, this needs not to be the case. There are medium and long term benefits owing to the commodity price rise for African producers. About 48 of the 53 African countries are dependent on commodity exports, including primary agricultural commodities, minerals and oil products to earn foreign exchange. The recent price boom has swept across commodities like metals, oil and food. Africa is a natural basket of most of these commodities and enjoys an absolute advantage on supplies.

Specifically, food-related commodity price increases are attracting a lot of global attention. The World Bank warns that over 100 million people, especially in Africa, could be severely affected and plunged into deeper poverty. The president of the bank has called for a “new deal for global food policy” to the tune of $500m to support the World Food Programme.

This is because food crop prices have increased by more than 85% since 2004 and they are predicted to remain above 2004 levels until 2015. In Uganda, most households are net food producers and could benefit from high food prices through regional food exports.

Oil prices are also booming, a major commodity produced in Africa. The continent contributes 15%of the US energy requirements and is also major supplier to China. This ensures a windfall of oil revenues to the continent, especially to major African producers like Nigeria, Angola, and Equatorial Guinea, Sudan, Chad, Gabon, Cameroon, the Democratic Republic of Congo, Gambia and Libya and soon Uganda. Investing these revenues wisely in education, health, and other sectors of the economy, as well as upgrading the continent’s physical infrastructure, could turn its plight for ever.

A rise in global bio-fuel` production (fuel from crops like sugarcane, maize, soybeans and palm oil) especially in the US, Europe and Brazil is another opportunity for Africa. With vast unutilised agricultural land, Africa can grow and cheaply supply bio-fuel crops compared to subsidised and expensive sources in the US and Europe.

The global drive against climate change and the need for energy security will continue to make bio-fuel production a potential source of hope for poverty reduction in Africa if international and national policy makers seize this opportunity. A country like Uganda could be global supplier of grains for food and bio-fuels under these price incentives. China and India (the Asian drivers) are rapidly industrialising and they need metals and ores for their hungry and thirsty construction and manufacturing industries.

The demand for metals and ores in China will continue to push these commodity prices higher. The changing diets of middle income Chinese and Indians will push up protein-related food prices like milk, meat, pork and eggs in the long run. China’s GDP growth has averaged more than 9% since 1995. It makes up to 15.4% of the world economy, consumes a-third of the world’s iron ore, coal and steel, it is the world largest importer of copper and aluminium and the second largest importer of oil after the US.

This, with continued per capita income growth of the ‘Asian drivers’ and change in diets, will lead to a strong rise in demand for commodities, food-especially high-protein foods like meats, dairy products and vegetable oils thus sustaining price increases.

China and India account for 40% of world commodity consumers and 20% of the global purchasing power. Their consumption of commodities will more than double by 2020. This presents enormous opportunities for Africa’s household commodity producers in form increased farm incomes once strategically tapped.

The conclusion of the Doha Development Agenda in Geneva presents an opportunity. World trade negotiators in Geneva are about to conclude a development trade round which was launched in 2001 in Doha, Qatar, which could see shifts in agricultural subsidies in rich countries, and a reduction in import tariffs in the advanced economies.

This could lead to rise in prices for certain commodities like cotton and sugar hence increasing income opportunities for commodity dependent developing countries like Uganda Benin, Mali and Burkina Faso for the case of cotton.

In the final analysis, there is plenty of opportunity for sub-Saharan Africa to turn around its “development puzzle” and get out of poverty by 2015. A country like Uganda can focus on becoming a food basket for the region, focus its Poverty Eradication and Action Plan, organise farm households to produce economically viable commodity clusters like the North Busiro Development Foundation of Prof. Gilbert Bukenya’s upland rice.

Also the Bonna Bagaggawale and other poverty eradication programmes should prioritise agriculture to produce strategic commodities that are going to be in high global demand now and in the future. There should be less politics and more organisation to produce for both local and international markets.

The writer is an economist based in Geneva, Switzerland

Surging prices an opportunity for Africa

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