SADC REGIONAL FOOD RESERVE FACILITY (RFRF)

1. SADC REGIONAL FOOD RESERVE FACILITY (RFRF) FRAMEWORK FOR THE ESTABLISHMENT OF A RFRF SEMINAR AT NATIONAL AGRICULTURAL MARKETING COUNCIL BY Dr. JK RWELAMIRA 27 MARCH 2009

2. Organisation • Summary of report • Introduction • Rationale and importance of RFRF • Specific Objectives • RFRF Main Components • South African case • Comments on RFRF • Alternatives

3. 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)

4. Why RFRF Attainment 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.

5. 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

6. 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.

7. 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

8. 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)

9. 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)

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. Stock size & product mix

18. 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

19. Core components cont... • Food Reserve Management Information System • Rules and Procedures; • Market-based risk management • Conducive production, marketing and trade policy environment

20. 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)

21. 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

22. 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

23. 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, thusit could rely on world market to obtain more stock when need arises (China, Argentina, etc not selling)

24. 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

25. 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.

26. 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)

27. 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?

28. 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

29. 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.

30. 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?

31. 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

32. 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

33. 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.

34. Alternative and cheaper ways of RFRF Futures Market South African Futures Exchange (SAFEX) could play 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

35. 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 countriesbased 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

36. END THANK YOU!