Monday, November 7, 2011

The price of seeds (and everything else) in Africa

Good news: the prices of cereals, edible oils, sugar, and dairy products were down sharply in October, bringing FAO's food price index down to its lowest point for the year. Not that it's all that low, but it's something. However, peanut butter prices are up 40% in the US, but not abroad (so American expat families everywhere can breathe a sigh of relief). Since the US government shields peanut growers from the world market, the weather in Georgia and Alabama matters for the US price, but not the international price.

Swaziland's government has retracted its usual agricultural input subsidies: no more discount or free seeds, no more discount tractors (government was charging $17.30/hr rental; private cost is $26.60). The article also discusses how the feudal land tenure system makes things more difficult. One farmer laments:
“I live on the banks of a river [the Nkomati]. My maize crops could easily thrive if I had a simple pump and piping. What I harvest would pay for the loan, but I have no collateral because there is nothing to offer the bank" [because he does not own the land and so can't put that up as collateral.]
Roving Bandit notices the South Sudan National Bureau of Statistics report: annual inflation in South Sudan is up to 60% from September 2010 to September 2011. For the year, the biggest contributor is food prices that went up 64%. The price of furniture and furnishings went up far more (108%) as did alcohol (95%), but food carries a much larger weight (71/100) in the basket of goods than anything else. Food price increases have been very small this month, thankfully.

Despite these circumstances, Demombynes cheers a successful brewery in South Sudan that is investing in its community as well as its business:
The plant creates jobs and contributes to local development.  It employs about 400 people, 380 of whom are South Sudanese. The local community receives free drinking water from the plant and also receives royalty payments through a creative land lease agreement. Once the expansion is complete and an on-site clinic constructed, the plant will provide free health care to employees and dependents. The plant is also a major taxpayer to the South Sudan government which currently funds 98% of its budget from oil.
The plant’s managing director, Ian Alsworth-Elvey, openly shared his experience of running this pioneering manufacturing business. He was adamant that South Sudan is no better or worse than other countries in the region where he has worked.
But I'm promising prices today. Foreign exchange prices matter for the growth of the firm:
For its soda production to remain profitable, SSBL needs to increase the current recommended retail price of 1 SSP (approx. US$ 0.30) per bottle of soda. However, since the 1 SSP bill is the smallest denomination available, the only option for the brewery is to double the recommended price from 1 to 2 SSP, which would clearly dampen demand.
Oddly enough, then, the increasing inflation may help the firm indirectly.

Collier recognizes that a healthy portion of Africa's growth in the last decade has come from rising prices of the natural resources they extract and export. He then asks how they can do a lot more with that. He recommends:
  1. "Africa needs geological information to be made public before it goes to auction with private companies seeking to invest in resource extraction. This will enable it to better the financial returns it gets from what are at present poorly negotiated deals."
  2. "African countries must ‘tax what they can observe’ and tax systems must be built with the notion that this is a volatile world."
  3. "Avoid becoming like the Niger Delta; One must ‘deal sensibly with the locals.’ "
  4. At least 30% of the resources from any resource deal should be saved for the future.

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