sadc regional food reserve facility (rfrf) framework for the establishment of a rfrf seminar at...
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SADC REGIONAL FOOD RESERVE FACILITY (RFRF)
FRAMEWORK FOR THE ESTABLISHMENT OF A RFRF
SEMINAR ATNATIONAL AGRICULTURAL MARKETING
COUNCILBY
Dr. JK RWELAMIRA27 MARCH 2009
1
Organisation Summary of report
Introduction Rationale and importance of RFRF Specific Objectives RFRF Main Components
South African case Comments on RFRF Alternatives
2
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)
3
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.
4
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
5
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.
6
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)
8
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
10
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
11
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
12
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
13
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
18
Core components cont...
Food Reserve Management Information System
Rules and Procedures; Market-based risk management Conducive production, marketing
and trade policy environment
19
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
21
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
22
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)
26
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?
27
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
28
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?
30
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
31
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.
33
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
34
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