SADC REGIONAL FOOD RESERVE FACILITY (RFRF)

FRAMEWORK FOR THE ESTABLISHMENT OF A RFRF

SEMINAR ATNATIONAL AGRICULTURAL MARKETING

COUNCILBY

Dr. JK RWELAMIRA27 MARCH 2009

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Organisation Summary of report

Introduction Rationale and importance of RFRF Specific Objectives RFRF Main Components

South African case Comments on RFRF Alternatives

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REGIONAL FOOD RESERVE FACILITY (RFRF)

The SADC Secretariat was seeking for comments on SADC - RFRF Report prepared under FANR – Directorate (May 2007)

Consultations and debate on the need for

a SADC –RFRF have gone on for quite a while, since 1980s)

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Why RFRFAttainment of food security at all times & at all

levels of society has to satisfy 3 basic conditions of FS Availability through production and/or

exchange in the market; stability of supply, both spatially and timeously are the key elements;

Access – where populations at all levels have sufficient purchasing power to gain access to all food needs and

Utilization –food adequacy for nutritional wellbeing.

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Support of RFRF by national governments

However, despite adoption of market oriented policies (thr’ structural adjustment programs) in SADC

member states in the past three decades, food insecurity has persisted in some of countries in SADC Region

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Why SADC - RFRF

Some Governments therefore, have had to establish and maintain Strategic Grain Reserves (SGR), primarily to address issues pertaining to ensuring stable food availability.

The establishment of SADC-RFRF is proposed to address similar issues at regional level.

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Regional & International support for RFRF

Africa Union (AU): The AU recognises that over 30%

of continents population is still food insecure, while most countries are net importers of food and large recipients of food aid

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Support for RFRF cont..

Also, the AU recognises the Maputo Declaration of July 2003, pertaining to agriculture & food security; it strongly recommended a need to establish regional food reserve systems, including food stocks, linked to development of policies and strategies under the AU & Regional Economic Communities (RECs)

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Support for RFRF cont..

NEPAD strongly collaborated with SADC Secretariat to review experiences in food reserve systems in 8 countries representative of Sahel, East, Southern and the Horn of Africa (May 2004)

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Regional & International Support for RFRF cont..

World Bank - funded case studies of SGR (2004) in Malawi, Tanzania & Zambia and internally, and the design of RFRF

FAO – SGR guideline / manual & technical expertise for establishment of SGRs

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Rationale for SADC-RFRF

RFRF could enhance Disaster preparedness Food security

through: Collective food stockholding programs Collaboration in development of

efficient production, marketing & trade policies

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Rationale cont…

Benefits of RFRF could include: Management of macro-economic

shocks Better planning of planting programs Opening of new markets More stable food prices Harmonised trade policies

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Why RFRF cont…

Thus RFRF would help to deal with food emergencies and prevent food supply crises due to

adverse climatic conditions, thus Ensuring food security

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Specific Objectives of RFRF stabilise supply of food grains stabilise producer prices by accumulating

stocks in time of price weakness and liquidating stock in time of price inflation

protect and increase producer prices avoid sharp increases in food retail prices

to consumer in periods of shortages by releasing grain from the reserve

ensure adequate supplies of staple grain in SADC states

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Other considerations

Reducing other barriers to trade & importation of emergency supplies that compound food insecurity, including: poor infrastructure (transportation

networks), making it difficult to move food from areas of abundance to areas of shortage

limited or shortage of foreign exchange in order to purchase food (lack of purchasing power)

Food price instability due to exogenous factors

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Core components cont... Physical Reserves-(500 000tons,

equivalent to three months consumption requirement for an average no. of countries, to be realised in 3 years),

Four major staple grains to be stocked: White maize Wheat Sorghum & millets Rice(Livestock (grain for feed) included

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Stock size & product mix

Regional Reserve Crops

Proposed Physical Stocks - tonnes

Proposed Financial Facility –

Tonne equivalen

t

Grand –Total

Tonnes

White maize

150 000 50 000 200 000

Wheat 130 000 40 000 170 000

Rice 80 000 30 000 110 000

Sorghum / millets

15 000 5 000 20 000

Total 375 000 125 000 500 000

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Core components of RFRF Financial reserve: Regional Reserve Centres: throughout

SADC region Regional Food Reserve Committee: for

representation Regional Food Reserve Management Unit

–with following professionals: Food Reserve Manager or Reserve Fund

Manager Finance & administration Manager Food Security Analyst Logistics Specialist

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Core components cont...

Food Reserve Management Information System

Rules and Procedures; Market-based risk management Conducive production, marketing

and trade policy environment

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Financial Implications & Budget Total budget: US $ 93.5ml (over 3 yrs)

Physical stocks: US $ 89ml Financial reserves (4.8%): US $ 4.5ml

Budget with costs: US $ 108.7 For physical stock: US $ 104.2ml Financial Reserve: US $ 4.5ml

Day to day operations of FRMU & Operations of RFRC: US $ 118.8ml (over 3

years)20

South Africa’s views

SA is aware of food security challenges in SADC region and has considered SGR: As a method to curb price instability To deal with food price increases Ease pressure on poor communities

during periods of high food prices

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SA views cont..

SA latest experiences of price instability were:

When drought affected SADC region, (2001/2002), which led to very high prices of food; Recent (2008/09) sharp increases in

food prices globally, caused by complex interlinked forces

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Difference of South Africa from other countries

South Africa has not experienced: Real food shortages from crop failures Any major drought post 1994, thus The concern in SA is on price stabilisation &

sharp unexpected food price increases SA liberalised market is operating smoothly Retail prices are relatively stable in SA Before current world financial crisis SA has

adequate FOREX, thus it could rely on world market to obtain more stock when need arises (China, Argentina, etc not selling)

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Difference cont….. Price instability in SA is not caused

by supply fluctuations Sharp increases in prices are due to:

Exchange rate depreciation, high world prices, food shortage in the region Near impossibility of importing white

maize

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General Criticisms of SGR / RFRF

Establishment of any form of Strategic Grain Reserve (SGR) would not make economic sense from SA point of view, for reasons explained above also due

to: Inefficient and costly way SGR are

operated, especially if handled by government agencies.

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Criticisms cont… Food price crisis in SA recur only after

about 10 years, which may not warrant an annual high bill (estimated at R252ml for SA alone) to maintain SGR.

SGR may results in unequal access to stock (e.g., in the case of Zambia)

Liberalised trade has a price stabilising effect (Kenya, Mozambique & Zambia)

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Specific suggestions for improvement of the report Report should present concrete findings from an

analysis regarding grain volumes in SADC countries:

The data used is quite old, authors should get recent data from FAO and other sources

Grain production trends by country over 10 years Grain consumption trends by country over 10 years Which countries need the reserves Country grain shortage trends over past 5 – 10 years Main reasons for shortages by country, clear indication of

individual country constraints Which countries are likely to contribute to the reserves?

(physical & financial) What needs to be put in place before facility can operate?

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Specific suggestions cont….Report should reflect: Pros & cons of establishing SADC - RFRF Impact of RFRF on

the market in general grain prices

Indication of how long RFRF is going to run What would be the role of private sector? Shouldn’t private sector take over day to day running of

reserves (rather than Government agency / unit, which will make it more expensive to operate?

Consideration of Public Private Partnerships Price distortions / fluctuations likely to happen due to

improper government interventions; with SGR government tends to becomes buyer and seller of grains

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Proposed capacity too small How was 500,000 metric tons of grain

reserve decided upon? (basis) This is a small amount; e.g., South Africa

estimated a 3 months consumption of over 1,3 million tons of maize (2003)

Physical facility to hold that would require Initial outlay of R 850 million ($130.8 at

2003 prices) Cost of capital & storage fee was estimated

at R252 million/annum (2003) A very big financial burden on the

Government since in only one out of ten years RSA experiences drought that would reduce supply. 29

Suggestions cont…

What would be recommended locations of Regional Reserve Centres & why?

Implications to handling cost Implications to countries with

deficit Why is white maize included for

livestock feed?

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Budget:

Figures used in budgeting are based on old data?

More detailed computation of figures is required in a step by step form Different scenarios should be

presented under different assumptions Budget would change based on a more

realistic estimation of physical reserves

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Supply considerations Proper analysis of the supply side

constraints: The long term objective should be to stimulate

supply Accelerating / stabilising production in SADC

Identification of target high profile areas, arable land not utilised or under - utilised

Ref. DBSA funded SADC agricultural potential study, how to put all available land of SADC to best use

Other regional studied done on comparative and competitive advantage to revisited

What needs to be done to make region more productive? Roads & storage, irrigation and other infrastructural requirements

Identifying & utilising corridors for grain production based on competitive advantage 32

Infrastructure development

Provision of proper & adequate infrastructure (soft and hard) essential

Investment in road infrastructure in SADC to stimulate production along roads; e.g., Zambia & Malawi case of how improvement in roads enhanced production & F-Security

Analysis of stimulation of infrastructure and its impact on production is essential.

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Alternative and cheaper ways of RFRF

Futures MarketSouth African Futures Exchange (SAFEX) couldplay an important role in SADC to mitigate

risks Hedging potential increase in staple

commodity prices at pre-determined level of inflation

Hedging when commodity prices approach export parity levels, beyond which would generate profit

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Main themes Increased production in SADC region: investigate

constraints Harmonisation of policies; e.g., in countries like

Botswana and Namibia that are drought prone, policies that encourage the use of grain as animal feed in Namibia.

Regional and individual State policies on infrastructure investments,

Specialisation of production by crops and countries based on comparative & competitive advantage (production corridors)

PPP: in SA private sector mainly involved in stock-holding, thus efficient

Thus SA did not support RFRF in its current proposed

format, but willing to share information & expertise

END

THANK YOU!

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