While the weather phenomenon appears to have passed, El Niño will continue to impact food security, food prices and humanitarian needs well into 2017, says a new Bright Africa special report from African investment specialists RisCura.
Like the archetypal bandit in a classic Western, riding into town and wreaking havoc, El Niño has devastated many regions: leaving some places with a landscape of parched earth and animal skulls, and others a soggy wasteland of flooded crops and disease.
“In every case, economies have been badly hurt through the knock-on effects of this ‘weather bandit’, and they’re not over; they’re growing,” says the report author Fran Troskie at RisCura.
Food insecurity, the most readily apparent and widely reported effect of El Niño, is only likely to peak by December 2016 according to the United Nations Food Programme. Over 10 million people in Ethiopia, 3 million in Zimbabwe (30% of the population) and a quarter of Swaziland’s population already need food assistance. Sudan is likely to see more than 4 million people at crisis levels of food insecurity by September this year.
“Growing seasons, harvests and crops will remain affected well into 2017 with shortages in key agricultural commodities likely to persist even longer,” Troskie says. “As a result food prices have escalated sharply since December last year, and in South Africa, economists are predicting that food price inflation will reach 13% later this year.”
Looking at maize, South Africa, the largest producer on the continent, has been forced to import both the yellow and white varieties (1.73 million and 72 000 tonnes respectively as at end April 2016). A shortfall of 3.8 million tonnes is anticipated for this year. Maize prices have been peaking, with the staple fetching nearly 20% more per tonne than a year ago, at R4000 – R5000 per tonne (USD 270 – USD 340).
The knock-on impact on overall food inflation and headline inflation has been somewhat delayed for at least two reasons: In the first place, processed items (such as samp and maize meal) typically have a lag of 6 to 9 months before reflecting input-price hikes, and the lags for dairy, eggs and meat are slightly longer.
In the second place, retailers have been absorbing the brunt of the extra costs over the course of the past year, effectively subsidising cash-strapped consumers. It is clear, however, that they can only withstand so much margin-squeeze. Rising costs at producer level are increasingly likely to be passed through to the consumer.
Unlike more developed parts of the world, African economies are still largely reliant on agriculture, particularly Sub-Saharan countries where it contributes nearly 15% to GDP. Farming and related activities, including seasonal labour, are the main source of income in many poor communities. As market adjustments to weather-related headwinds play out, an almost perfect storm of higher food prices, wage cuts and job losses results in shrinking disposable income.
As food makes up between 40 to 60% of the consumption basket of the poorest in Sub-Saharan Africa, rising food prices have the most immediate and acute impact on the most vulnerable communities.
“The average size of food baskets will shrink significantly, as will the quality of what fills them, as less nutritional foods are typically cheaper,” says Troskie.
Households will also be forced to undertake precarious budget-balancing acts. Education and ongoing health needs will be neglected. This will have longer-term, negative impacts on countries’ human capital.
“Investors need to be aware of the ongoing direct and indirect impact of El Niño on the sectors and countries they invest in, and consider both the challenges and the opportunities that have emerged,” Troskie concludes.