BY GEOFFREY NANGAI
FOOD prices have continued to pressure Tanzania’s economy drastically impacting on the country’s standard of living.
The National Bureau of Statistics (NBS) statistics released on Monday indicated that the country’s inflation rose to 16.8 percent in September from 14.1 percent in August blaming it on the high fuel and food prices.
Economic experts however warn that food prices may not go down in a few months to come since there is no concrete plan to avert the situation.
NBS in said food prices which account for about 47.8 percent weighting in the Consumer Price Index had increased by 22.5 percent in September as compared to 18.6 percent recorded in August.
The statistics body noted prices of sugar, maize grain, cassava flour, bread, meat, fish, milk, cooking fat and fruits among others to have drastically increased during the month under review.
Government’s slap on food exports has however done little to normalise the situation since food prices have been sky-rocketing across the country in recent months.
“Consumer prices rose to 2.4 percent in September,” the statistics body said in a statement.
Over dependence on rain
Tanzania’s agriculture is mostly dependent on natural means that include rainfall. The rains have not been reliable and at times delayed that has impacted on the country’s food production.
Rainfall has an outsized influence on inflation on the agrarian economies like Tanzania’s with good rains leading to good harvests and lower prices.
The country has a good vision to support the agricultural sector inform of the ‘Kilimo Kwanza’ program but a lot still has to be done to walk the talk.
Possible alternative
Countries that include Indian among others have traditionally maintained buffer stocks as a means to stabilise domestic food grain prices. In the scenario of liberalised external trade in food grains, examination is done on cost effectiveness of variable levies on trade as an alternative option to stabilise domestic prices.
The use of variable levies is much more effective in stabilising prices and reducing food insecurity as compared to buffer stocks and buffer stock operations are also found to be less effective in reducing food insecurity under free trade as compared to the case of autarky or no trade.
For several decades, the dominant approach for managing food price instability has
been to stabilise income without affecting prices. The idea behind this approach is that prices guide behaviour, so any attempt to change prices damages this mechanism for resource allocation.
At the same time, the ‘natural’ insurance that comes from the negative correlation between harvest size and price level stabilises producers’ incomes. Thus, any effort to stabilise food prices reduces the correlation between prices and harvests and disrupts the existing natural equilibrium.
Although the difference between too little and adequate grain stocks is relatively small, a lack of sufficient stocks can lead to large price increases and a breakdown
of functioning markets.
Both 1973 and 2007 showed global grain stocks hitting record lows, prompting global food crises. The difference in global end-of-year stocks in 2004–05 and 2007–08 was only about 60 million tonnes, or 2.7% of global production, but with prices rising sharply in 2007–08 this difference in grain stocks, combined with the price increases, was enough to cause serious problems in the market and especially in the more concentrated commodities, as the case of rice (Timmer 2009).
Droughts, floods or any other severe weather shocks can have a significant impact on supply because grain production is so sensitive to weather.
Together with the inelasticity of demand, any supply shocks can lead to price spikes and hoarding by farmers in order to take advantage of higher prices in the future.
Global perspective
Cereal demand has been growing at 2–3% per year, thanks to rising incomes in China,
India and, more recently, sub-Saharan Africa. Yield growth in these cereals has declined from 3% in the 1970s to 1–2% in the 1990s resulting in a significant reduction of cereal reserves to less than 400 million tonnes in 2007 from 700 million tonnes in 2000
Policy review to reduce price volatility
Physical reserves have been used at national, regional and international levels at different times throughout history to control price spikes and reduce price variability.
For decades, large countries such as China and India have kept a significant level of physical reserves because of their size and the effects that their entry into world markets during harvest shortfalls would have on prices.
Many African countries, including Tanzania, Burkina Faso, Mali, Mozambique, Niger and Ethiopia established nationally based food security reserve stocks between 1975 and 1980.
This was during a time of heavily managed agriculture and, because global grain prices were extremely high, many of these governments did not trust world markets to be secure sources of grains during an emergency.
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