JOINT SPECIAL REPORT Grain Market Outlook for West Africa. March 19, Key Messages. Stable or rising grain prices at harvest time

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1 JOINT SPECIAL REPORT Grain Market Outlook for West Africa March 19, 212 Key Messages Grain prices on a number of markets remained unchanged or continued to move downwards in January and February of this year. In general, the difference in prices between net surplus and net deficit areas favors a flow of grain into the Sahel. There are signs that these same trends are continuing into March. Prices for local grains on certain markets in Mali are at historically high levels, pointing to food access problems for poor, market dependent households, particularly at the height of the lean season between June/July and August. According to the CILSS, revised grain production estimates for West Africa and the Sahel in particular are near or above the five year average. In general, the rise in coarse grain prices across the region between October and December of last year was due mostly to the combined effects of the late harvest and a significantly stronger and earlier than usual institutional and household demand. Thus, it is highly likely that market supplies will suffice to meet demand as long as there is an unrestricted flow of trade. The degree of market effectiveness in moving commodities from surplus to deficit areas varies. Price spreads between net production and net consumption areas of Mali and Mauritania are larger than usual, signaling a stronger than usual demand, a smaller than usual supply, and higher than usual informal trade barriers. Civil security threats in northern Mali and northeastern Nigeria (a key source of supplies for the Sahelian region of Chad) are also contributing to market stress. The equilibrium between market supply and demand and food access is precarious at best. Risk factors include: o possible shortages and inadequate flows of maize and sorghum into net consumption areas of Mali and Mauritania during the lean season; o low grain availability and a decline in demand for livestock in the Sahelian region of Chad with the closure of that country s borders with Nigeria; and o volatile markets and supply chains in conflict affected areas. Stable or rising grain prices at harvest time The revised production estimate as of March of this year puts gross grain production for the Sahel and West Africa at 54,78, metric tons (MT), up from the 54,451, MT estimate dating back to November of last year and 5% above the average for the last five years. The revised grain production figure for the Sahel is 16,424, MT, versus the 16,613, MT estimate from last November, which is down sharply from last year ( 26%) and 3% below the five year average. Given the overall average production figure for the region as a whole, it is highly likely that market supplies will suffice to meet demand as long as there is an unrestricted flow of trade. The first grain harvests in bimodal areas and the southern reaches of the Sudanian zone, which normally take place between July and August, were extremely late getting underway in 211. These crops did not get to market until sometime between October and November. Similar delays in grain harvests in the Sahel extended the lean season through the end of October. Up until that point, grain supplies were sustained largely by traders using carry over inventories from the previous year. Once the harvest season began, a number of contributing factors kept supplies smaller than usual. Production shortfalls in major grain producing areas of southern Mali and western Burkina Faso forced farmers to sharply reduce the amount of grain sent to market in order to maintain enough household food stocks to protect their own food security. The result was a smaller than usual supply of grain in the central trade basin (Burkina Faso, Mali, Côte d Ivoire, and Ghana). The Lac region of CILSS M.Badiao@agrhymet.ne FEWS NET librahim@fews.net

2 Chad, which is an important source of supply for neighboring net consuming areas, also reported a shortfall in this year s maize production. There were two other contributing factors to the tightening of supplies at the farm gate level. The late start of the rains required multiple replantings by farmers, raising production costs and reducing output. Moreover, the poor start of the growing season hindered redeployment of the agricultural workforce, particularly in the eastern trade basin. The resulting scarcity of labor sharply increased labor costs, hurting large farmers in particular, whose output accounts for a large share of market supplies. At the same time, there was a sharp rise in demand from traders. Since September of last year, traders in Niger, Nigeria, and Burkina Faso in the eastern trade basin have been expecting the government of Niger to purchase a minimum of, metric tons of grain this year as food aid for food insecure populations, which is more than double the usual volume of government procurements. A similar situation has arisen in Burkina Faso. With the availability of crops from the first harvests of the season, markets in surplus areas, as well as farmers in local villages, saw a strong demand from traders, fueled by the prospect of large institutional procurements. The availability of spatial or temporal arbitrage opportunities also encouraged traders to build up large inventories. For example, according to the traders interviewed in the course of joint CILSS FAO WFP FEWS NET field missions to Niger, grain demand for stock building purposes absorbed approximately 7% of the volume of grain trade from Nigeria to Niger. There were also reports of traders from Niger and Burkina Faso scouring villages across Benin for maize between August and November of last year, while aid from NGOs in Benin to small farmers in that country as part of the so called warrantage or inventory credit or warehouse receipts system (the pledging of inventories stored in a warehouse to enable farmers to borrow against their harvest) only served to further tighten supplies. It was not until the end of November that markets began receiving large quantities from the new maize harvest. Finally, localized losses of crops boosted household and community demand in northwestern Mali, southeastern Mauritania, northern and northeastern Burkina Faso, western Niger, and the central parts of Sahelian Chad. The combination of these factors drove up prices at harvest time, which is normally a Figure 1: Grain price indeces, Oct. 7 Jan period of lower prices (Figure 1). Thus, 9/1= 2 4= December 211 prices for local grain crops 17 were 2 to 4% above five year averages in Niger and Chad and 6 to 8% above five year 13 averages in Mauritania, Burkina Faso, and Mali. However, though comparatively high, prices in Niger, Burkina Faso, Nigeria, and Chad are still in line with price levels during the post 8 crisis period. This is not the case in Mali and Mauritania, where prices for traditional cereals are visibly above historical levels. The sharp rises in prices in the central trade basin driving them above the average are, in part, a reflection of the longtime Grain, central and western basins, Sudanian zone Grain, eastern basin, Sudanian zone FAO Cereals Index Grain, central and western basins, Sahel Grain, eastern basin, Sahel extremely low prices in this area thanks to Sources: FAO, FEWS NET, and country market information systems 1 previous good grain harvests. In a way, this year s higher prices are only normal given the poorer harvest in this area, the rising prices in the other trade basins, and the relatively more open markets and more limited logistics capacity of traders in the central trade basin area compared with the eastern basin. 1 The «Grain, central and western basins, Sudanian zone» price index is based on wholesale or retail prices for corn maize and sorghum on markets close to major grain producing areas of the Sudanian zone. The index also includes prices for corn maize and wheat in Nouakchott, Mauritania, where most supplies are from the world market. The «Grain, central and western basins, Sahel» price index is based on retail prices for corn maize and sorghum on markets generally located in deficit areas. The «Grain, eastern basin, Sudanian zone» price index is based on wholesale or retail prices for corn maize and millet on markets close to major grain producing areas of the Sudanian zone. The «Grain, eastern basin, Sahel» price index is based on retail prices for corn maize and millet on markets generally located in deficit areas. These indexes are simple averages with 9/1 as the base period. The figures on the right hand axis refer to the FAO price index for grain from the world market. These indexes are indicative of price trends but do not necessarily reflect relative price levels in different regions. Joint Special CILSS-FEWS NET Report 2

3 This year, short distance trading, which normally takes place between the harvest season and January or February, has generally been limited. It is this type of trade that normally helps drive down prices. On the other hand, there were reports of long distance trade in commodities from wholesale markets in Guinean and Sudanian areas following the harvest, which is unusual, with this type of trading normally observed only during the lean season. These grain trade flows were sustained largely by last year s crops. Continuing longdistance trade and the first shipments to market of this year s crops caused January prices in the eastern trade basin to fall (Figures 2 through 6). However, prices in Mali continued to rise. Figure 2: Millet prices in Nigeria and Niger, Jan. 7 Feb Kano, Nigeria Niamey, Niger Maradi, Niger Tillabéri, Niger Tahoua, Niger Figure 3: Sorghum prices in Nigeria and Niger, Jan. 7 Feb. 212 Market performance in the eastern trade basin Overall grain availability in the eastern trade basin (Benin, Niger, Nigeria, and Chad) is adequate. Markets are ensuring an adequate flow of grain from surplus areas of Benin and Nigeria to grain short areas of Niger and, in some cases, Burkina Faso and Mali. However, they are less effective in supplying grain to the Sahelian region of Chad due to the limited capital resources of corresponding traders. Thanks to these trade flows, grain prices were down on retail markets in grain short areas of Niger and Chad in January of this year (Figures 2 through 6). Thus, the price of millet, the staple grain in this sub region, which was at 26 as of December of last year in Ayorou (in the far northwestern reaches of Niger), fell back down to 22 in January of this year due mainly to trade from Nigeria. The coupling of grain shipments from Nigeria to Niger with livestock exports from Niger back to Nigeria by corresponding carriers helps sustain this grain trade. Kano, Nigeria Niamey, Niger Maradi, Niger Tillabéri, Niger Figure 4: Maize prices in Nigeria and Niger, Jan. 7 Feb Malanville, Benin Kano, Nigeria Niamey, Niger Tillabéri, Niger Cassava flour, Malanville, Benin Sources: Country market information systems Note: Prices for Kano are wholesale market prices. Prices for Malanville, Maradi, Niamey, Tahoua, and Tillabery are retail prices. Prices for substitute products such as maize, sorghum, and cassava flour (gari) are below millet prices, stable, and relatively closer to seasonal averages in the absence of any significant rise in demand for these millet substitutes as of January of this year. These substitute foods are consumed mainly by households in Niger (sorghum, maize, and cassava meal) and Chad (sorghum and maize). However, recently, the acute social crisis and civil security problems in Nigeria have been restricting the flow of food trade between that country and its neighbors. The flow of trade has been sharply reduced (to anywhere from 75 to as little as 1% of its normal volume) and informal levies on imports and exports have been increased. There are frequent disruptions in the flow of livestock trade, particularly in shipments by traders from Niger, Chad, and Burkina Faso, due to the security Figure 5: Millet prices in Nigeria and Chad, Jan. 7 Feb. 212 Joint Special CILSS-FEWS NET Report 3

4 threats faced by these traders in crossing through Nigeria. In contrast, Nigerian traders are still supplying grain, particularly to Niger, and buying livestock, even on markets in Niger far from supply centers such as the Ayorou market on the Malian border. Impact of the Nigerian crisis on Chad 3 XOF or XAF/kg Chad s cereal balance sheet for this year posted a large deficit; Chad will need to import the equivalent of 3% of its grain needs. According to the findings by the joint CILSS FAO FEWS WFP field mission to that country, supplies from harvests of flood recession crops in Salamat are expected to meet only a small percentage of grain needs in the country s Sahelian zone. In such a case, Nigeria would normally be a major source of supply; but, unfortunately, trade routes to and from that country run right through the epicenter of the conflict in the state of Bornou. The flow of trade to and from Nigeria has been sharply reduced. This has not yet affected grain markets in Chad, but is a threat to markets for exports such as groundnuts and sesame, whose prices have plummeted. Moreover, trade from the Sudan and Libya, which normally supply Chad with fuel and processed foods, has been disrupted by the Kano, Nigeria Moundou, Chad N'Djaména, Chad Moussoro, Chad Figure 6: Maize prices in Nigeria and Chad, Jan. 7 Feb XOF or XAF/kg Kano, Nigeria N'Djaména, Chad Bol, Chad Moussoro, Chad Sources: FEWS NET and country market information systems Note: Prices for Kano are wholesale market prices. Prices for Bol, Moundou, Moussoro, and N Djamena are retail prices. Prices for Chad are in XAF/kg. current sociopolitical problems in these countries. Trade with Cameroon is unaffected but, in itself, does not suffice to meet the country s needs. February grain prices in the Sahelian region of Chad were still comparatively high, though millet prices in the southern part of the country were starting to fall with the marketing of producer and trader inventories (Figure 5). Western reaches of the central trade basin and western trade basin The performance of local grain markets in these areas is poorer than in the eastern trade basin or in previous years, particularly in Mali and southeastern Mauritania. In many cases, though there have been no disruptions in the flow of trade, it has failed to kept pace with demand, particularly in the western reaches of the central trade basin serving grainshort areas of northwestern Mali. As in the case of the eastern trade basin, supply chains are slower than usual and trade between Côte d Ivoire and northwestern Mali and even southeastern Mauritania is starting up earlier than usual. The limited flow of south north trade, the higher costs engendered by these slower than usual trade flows and by trade barriers, and a stronger household demand have driven prices well above historical levels, with larger spreads between market prices in deficit areas and southern surplus areas. Sorghum and millet prices in Mali are over, even in surplus areas of Segou and Sikasso (Figures 8 and 9), topping historical levels by more than. These high prices sparked a market reaction which, though less effective than in the eastern trade basin, in turn, triggered a small, temporary dip in prices (Figures 8 and 9) in January, with prices in Mali resuming their upward climb as of February. Though higher than last year, prices for local grain crops in Burkina Faso are still lower than in the other countries. Prices in the far northern reaches of the country, which is considered a potential trouble spot in which the food security situation is tenuous at best, are still well below (Figure 7). There were large exports of millet by Burkina Faso to northwestern Niger through December of last year. Not only did the large availability of low cost millet from Nigeria make millet from Burkina Faso less competitive on the Ayorou market in Niger. It also helped generate a flow of trade from northwestern Niger to northeastern Mali and northern Burkina Faso. There are also reports of unusually high maize prices Joint Special CILSS-FEWS NET Report 4

5 in Ghana (due to heavy demand for poultry farming activities), which could limit the flow of this substitute grain into the Sahel. Figure 7: Sorghum prices in Burkina Faso, Jan. 7 Feb. 212 Poor harvests in Senegal are affecting market supplies and household grain reserves. As a result, market prices for local grain crops are unusually high, with average annual price differentials of 26% (for souna millet), 29% (for sorghum), 31% (for maize), 26% (for imported maize), and 12% (for imported rice). The limited availability of local grain crops at this time of year has helped trigger earlier than usual imports of Canadian and Argentine maize. There will also be a sharp rise in demand for imported rice with the depletion of household reserves turning rice producers into net rice consumers. In Gambia, harvests for the season were also smaller than last year s harvests, coming in below the five year average. Even with this production shortfall, thanks to a wellintegrated market system able to keep pace with a growing food demand, country wide grain needs are being met by rice imports, but prices remain high. Food prices have been climbing since December of 9 in the aftermath of the sharp hikes in all major food prices triggered by the food crisis of 8. Expected normalization of market conditions; continuing hazards Recent trends in prices for local grain crops and in trade flows suggest that, in general, markets in the eastern trade basin should continue to perform more or less normally. As a result, grain prices on open markets should remain relatively stable between February and March. This should be followed by a more or less normal seasonal rise in prices between March and July, when they tend to reach their peak. Bobo Dioulasso, Burkina Faso Solenzo, Burkina Faso Gorom Gorom, Burkina Faso Figure 8: Sorghum prices in Mali and Mauritania, Jan. 7 Feb Sikasso, Mali Ségou, Mali Niono, Mali Mopti, Mali Adel Bagrou, Mauritania Figure 9: Maize prices in the central trade basin, Jan. 7 Feb. 212 Bouaké, Côte d'ivoire Bobo Dioulasso, Burkina Faso Sikasso, Mali Djibo, Burkina Faso Ségou, Mali Tamale, Ghana Sources: FEWS NET and country market information systems Note: All prices are retail prices. However, these trends do not apply to the Sahelian region of Chad, where supplies can be expected to run short during the lean season. Movements in prices in the central trade basin are more questionable in the face of current risk factors (trade barriers, fighting in Mali, and high prices in Ghana). In such a scenario, demand for local cereals (maize, millet, and sorghum) in the Sahel particularly in areas hard hit by crop losses will drive up prices in southern supply centers. There will be regular hikes in prices in the Sahel, followed by a period of price stability coinciding with the shipment of supplies to these netconsuming markets. Maize from the Guinean area and the southern parts of the Sudanian zone will play an important role as a low cost substitute for millet and sorghum. Joint Special CILSS-FEWS NET Report 5

6 The impact of rising prices for local grain crops across the region will be mitigated to some extent by the availability and moderate cost of important substitutes such as cassava meal (gari), sorghum, and maize from the coastal states and imported rice from the world market, depending on the country in question. The marketing of local rice and off season crops between February and April should also slow the upward movement in coarse grain prices. Imports will also play a major role in safeguarding food access. This is especially true in the case of Mauritania, where the price of imported wheat is still more affordable than the cost of sorghum (Figures 8 and 1). There are continuing risk factors for market dysfunction which need to be monitored. In fact, Figure 1: Prices for substitute grains in Mali and Mauritania, Jan. 7 Feb Local rice, Dori, Burkina Faso Local rice, Adel Bagrou, Mauritania Local rice, Ségou, Mali Sources: FEWS NET and country market information systems Note: All prices are retail prices. Imported rice, Adel Bagrou, Mauritania Wheat, Adel Bagrou, Mauritania the region may still be facing serious events. The intensification of current civil and religious conflicts in Mali and Nigeria, respectively, is a prime example. Any disruption in cross border trade with Nigeria will likely negate the positive effects of the current good market performance. Chad is already feeling the effects of these barriers to cross border trade and their actual or potential impact will be that much greater as the lean season gets closer. Shortages and disproportionately large hikes in prices are a distinct possibility if market stocks are depleted. Chad is also reeling from rising fuel prices, which is another factor driving up food prices in net consuming areas. Early signs of a depreciation of the CFA franc vis à vis the Naira and Ghanaian Cedi are also a source of concern for both Niger and Chad. Finally, a poor start for the upcoming growing season in bimodal areas in March April and in the Sahelian zone in June July could alter the positive outlook under the scenario described above. However, any restrictive trade practices liable to interfere with the smooth operation of area markets are to be avoided. Ongoing trader expectations of institutional procurements could continue to hamper the smooth operation of area markets by tempting them to wait for potential future procurements instead of supplying markets in food deficit areas. Joint Special CILSS-FEWS NET Report 6