The Impact of the Drought in the United States
Eddie Cross
Harare 21st August 2012
The US generates about a quarter of global GDP and about the same volume of
basic foods. However, it is the largest producer of food surpluses and
perhaps as much as half of all the basic foods traded emanate from the USA.
Under these conditions a small variation in US agricultural output has a
disproportionate impact on global food stocks and prices.
At the beginning of the current season (basically March to October) the
summer position was forecast to produce near record crops of maize and soya
beans. Yields were predicted to exceed 2011 and both stocks and output
looked positive. Since then the US has experienced dry, hot conditions and
almost 85 per cent of the summer crop has been damaged. Wheat was less
affected as it was ready to reap early in the summer and was less affected.
As a consequence prices for corn (maize) and soya have surged and are
expected to rise even higher in the next few months as the full impact is
appreciated in global markets. Stocks, already at low levels in relation to
global demand, are expected to fall even further and this situation can be
expected to impact the global food situation quite seriously. This situation
is developing against the backdrop of tight supply and higher prices that
have already pushed some 50 million people back into abject poverty around
the world.
Corn and soya are the basic feed stocks of a whole range of industries –
pigs, poultry, dairy and beef as well as an important staple food for
billons of people. Maize (corn) is the staple food in most countries in
Africa and is only challenged by root flour (cassava) and rice in a small
number of countries. The emerging situation in the USA and in global markets
is therefore likely to have a serious impact on Africa, which, in 2011 was
the biggest food deficit region in the World importing some 150 million
tonnes of maize grain from surplus regions.
The question is what impact is likely on Zimbabwe? This is not as easy a
question as might be thought at first glance. Since the implementation of
the land grab in 2000, agricultural output from both small scale and large
scale agriculture (Peasant and Commercial) has declined by over 70 per cent.
This synergistic association between the two sectors is unexpected and
highlights the mutual dependency of the two main agricultural systems in
Zimbabwe.
In the current year the maize grain deficit will be about 1,2 million tonnes
or two thirds of our total demand. The deficit last year was about the same
although official figures deny this. Imports of maize grain and maize meal
ran consistently over 100 000 tonnes a month in 2011. This is in addition to
donor funded food aid for about 15 to 20 per cent of the population. In
respect to soya beans, our consumption demand is probably about 120 000
tonnes, of which about 30 000 tonnes is produced locally. In the case of
wheat we now import virtually all our requirements at about 350 000 tonnes
per annum. Wheat production has declined from near self sufficiency to a
bare 7000 tonnes this winter.
In a world market environment characterized by low stocks and drought
affected production, the food outlook in Zimbabwe is not good news. It
renders us vulnerable to market shifts and possible difficulties in securing
supplies. In the latter regard, we face the additional threat this year of a
general decline in regional supplies. Zambia and Malawi both have reduced
harvests and limited export surpluses. South Africa, which had a 9 million
tonne carry over three years ago will have limited stocks this year and a
shortfall of about 500 000 tonnes in current production.
This is in sharp contrast to the regional situation that has prevailed in
recent years when Zimbabwe simply had to collect supplies on a daily and
weekly basis from neighboring States at very low prices. It is possible,
given the tight stock position in the region, that regional States may
suspend exports to secure their own supply positions for domestic
consumption. If this was extended to halting exports of meal, it would
immediately create a crisis here given the three month lead time on supplies
from overseas.
What is a bit of a mystery is the fate of the 400 000 to 500 000 tonnes of
maize taken into stock by the GMB over the past two seasons at great cost,
funded by the Ministry of Finance. While some has been lost to poor storage
management, a great deal seems to have simply disappeared. This may be
partly explained by the “Grain Loan Scheme” which is simply a means of maize
distribution to local populations on a “never never” basis and therefore
virtually for nothing. But it is a factor that should be investigated by the
State, not just because it has cost us a couple of hundred million dollars
but also because it has made us more vulnerable to the global and regional
food crisis.
What is inevitable is that food prices are going to rise. Already there has
been a general rise of about 15 per cent in food prices in South Africa and
this will inevitably be reflected here depending on the exchange rate to the
US dollar. The price increases will affect all meat and dairy products as
well as eggs. Prices for maize meal have already risen – partly because of
rising regional prices for the grain and the deepening global market crisis
arising out of the drought in the mid west of the USA.
Nothing illustrates to global village character of 21st Century markets than
the food situation. One area of the world has a drought – the worst for 25
years, and the whole world pays the price and there is almost no time lag in
the market response. At the same time, this development emphasizes the cost
of the ill considered land invasions in terms of our basic food security
needs. The failure of the Zanu PF fast track land reform exercise will touch
every Zimbabwean family this year. In a situation where market forces should
elicit a strong production response from the farmers, the incentives of high
prices will fall like seed on stony ground in Zimbabwe. In other countries
farm incomes will rise as farmers respond to the new incentives.