Ukraine crisis means food prices will see more spikes, not only in SA, but across Africa

Food price inflation in Africa is likely to intensify across the continent in coming months, due to the heavy weighting of food of between 30% and 50% in the CPI basket, coupled with forecasts that global food prices will follow an upward trajectory in the second quarter of the year.

Many African countries rely heavily on Russia and Ukraine for wheat imports, and supply disruptions due to the Russian invasion are forcing governments to find alternative suppliers. While some countries are introducing incentives for farmers to increase production, others are introducing subsidies and price controls to limit pass these soaring commodity prices on to consumers.

According to research group Oxford Economics Africa, these measures might lessen the blow, but many African countries will find it almost impossible to escape rising global food price inflation, while efforts to secure food stability will also take its toll on national budgets and medium-term fiscal consolidation goals.

ALSO READ: Russia-Ukraine war likely to hamper wheat harvest

Serious shortages if supply stops completely

Most countries will face serious wheat shortages and food price inflation if imports from Russia and Ukraine are totally cut off.

However, Oxford Economics says, given that Russian wheat exports are not expected to come to a complete halt, countries that rely more on Ukrainian wheat will be worse off as port closures complicate trading.

The group says wheat shortages and rising wheat costs could cause countries to consider other grain types. Seen that wheat is a staple food in many North African countries, wheat demand is expected to remain inelastic, but in more price sensitive sub-Saharan Africa (SSA) countries where rice and wheat are staples, consumers may turn to rice as a cheaper alternative.

Maize is also a staple in many poorer SSA households, but in this case higher costs could also cause a shift towards cheaper traditional starches. The group also points out that soaring fertiliser prices and a heavy reliance on Russia for imports of fertiliser also pose a serious challenge.

While the Russia-Ukraine war is set to have serious implications for wheat supply and food stability in Africa, and it is difficult to fully estimate the extent of the impact, but the USDA’s updated Grain and Feed Annual Reports for Egypt, Nigeria, Morocco, Kenya, South Africa, Tunisia, Tanzania and Ghana suggest that Egypt, Nigeria and Tanzania would be hardest hit if imports from Russia and Ukraine had to stop completely.

Kenya, South Africa, Tunisia and Ghana would also be unable to meet their domestic wheat consumption requirements if this happened. It is unlikely that African wheat importers would be totally cut off from Russia, given that African countries have not been included on Russia’s list of ‘unfriendly countries’ and have not been directly affected by Russia’s export bans.

However, Ukrainian imports are more complicated.

Although the country’s granaries are overflowing, the maritime ports are closed and African countries, including Tunisia, Morocco, Nigeria, Tanzania and Egypt, where Ukrainian wheat imports make up between 15% and 50% of total wheat imports, will be worse off.

ALSO READ: SA small scale farmers need to be cushioned from effects of Russia-Ukraine conflict

Domestic production and policy initiatives

Domestic production and policy initiatives will also determine the extent of the wheat deficit and food price inflation. The Egyptian government, for example, provided incentives, such as subsidised fertiliser, to local farmers to increase domestic wheat production if they sell at least 90% of their wheat production to the government.

In Southern Africa, the harvested area in Tanzania is expected to drop as planting was delayed by poor rainfall conditions earlier this year, while wheat yields in Tanzania as well as Kenya are expected to be suppressed by improper application of fertiliser amid high fertiliser prices.

South Africa is hoping to increase its planted area, but rising input costs, especially fertiliser, will discourage farmers, Oxford Economics says.

Many African countries rely on Russia for imports of fertiliser and will be subject to supply disruptions and payment issues.

Kenya will also subsidise 114 000 million tonnes of fertiliser, while the Tanzanian Fertiliser Regulatory Authority (TFRA) issued indicative prices for different types of fertilisers in March.

ALSO READ: Here’s how Russia’s war in Ukraine rocked the global economy

Alternative suppliers

Governments are also searching for alternative suppliers. Egypt, the world’s largest importer of wheat, recently reached an agreement to import around one million tonnes of wheat from India, but it is not enough to replace the two to three million tonnes of wheat imported annually from Ukraine.

Egypt also returned to the global wheat market to buy more wheat, with the majority sourced from France, Bulgaria and Russia. Argentina and Brazil are also offering attractive alternatives after recording bumper wheat harvests, with Brazil exporting more to Morocco and Argentina exporting to Kenya, Algeria, Morocco, and Nigeria.

ALSO READ: Ukraine war fallout: SA mostly exposed with wheat imports, not maize

Alternative grain types

Oxford Economics also believes that the increasing cost of wheat and its impact on food priuce inflation can facilitate a shift towards other grain types, such as rice although it is unlikely to happen in countries where wheat is a staple food.

Inelastic wheat demand will force governments to look for alternative wheat suppliers or risk social stability, such as was demonstrated in the past with bread prices becoming a politically sensitive issue in countries like Egypt.

In countries such as Nigeria and Tanzania, where rice consumption exceeds wheat consumption, rice could be a viable alternative. However, maize is the staple grain in many SSA households, including Nigeria, South Africa, Ghana and Kenya, as well as an important source of animal feed.

The group warns that although maize is largely produced domestically, it is not shielded from soaring fertiliser prices.

Energy costs associated with cooking maize are also higher relative to other grains and therefore consumers in Ghana could turn to cheaper traditional starches such as plantains, cassavas, yams, coco-yams and sweet potatoes.

Potatoes have also become increasingly popular in urban areas in Kenya and the price of maize can also make them move away from maize.

Oxford Economics also points out that, despite efforts by governments to limit the passthrough of rising commodity prices to consumers, most of the countries in the analysis were unable to escape the inflationary pressures of soaring global food prices since the start of the war.