Impact of food prices increase among the poorest
Maseru, 5th of May 2016
By how much should the size of the Social Cash Transfer be increased to allow the poorest families to manage the food price shock?
A simulation analysis of the possible effects of the El Niño induced drought and the increasing food prices
• The drought induced by El Niño that is affecting southern Africa in 2015-2016 has triggered a rise in food prices – especially cereals – in the region.
• Poorer and less endowed households are the most affected by these price increases.
• Assuming that increases in total income will come only from existing social protection schemes such as the Child Grants Programme (CGP) and that all other sources of income remain stable, the amount of the CGP cash transfer will have to increase by 2 per cent for every percentage point increase in the price of cereals.
In May 2016 the Food and Agriculture Organization has released a study on the impacts of food prices increases on the Lesotho’s poorest households. This study intends to inform emergency response actions in the context of El Niño induced drought, which has triggered a spike in cereal prices in southern Africa and is compounded by a depreciation of the Rand.
The complete report can be accessed at: http://www.lesothocsa.com/uploads/5/2/0/9/52092147/report_lesotho_cereals_price_increase.pdf
Increases of food prices and serious impacts on food security
The main staple food in Lesotho is maize. Households either produce or buy the maize they eat. Due to El Niño, Lesotho is currently facing one of the worst droughts that have hit the region in the last 35 years. Most small scale farmers rely exclusively on rains for irrigation and will face crop failures. Even larger-scale farmers are affected – only a few planted crops. As a consequence, many households will not be able to rely on their own production and will need to purchase most food on the market in what remains of 2016 and well into 2017. Changes in food prices – including imports, on which Lesotho is highly reliant – are critical for Lesotho as they have serious implications for household food security, particularly among poor and vulnerable households.
Food prices are increasing at a higher rate than other basic consumption items. Food is the main driver of inflation as it counts for about 40 percent weight in the CPI (Consumer Price Index).
In the period between March 2015 and March 2016, maize meal prices in Maseru have increased by 36.9 percent. Most probably this increasing trend will continue in retail prices as increases in wholesale prices in South Africa – which have reached record levels of 100 percent for yellow and white maize in December 2015 – might add further inflationary pressure to retail prices.
The main cause of the price increase in Lesotho is the tightening of maize supply in both Lesotho and South Africa due to the failure in production brought about by the drought.
The current depreciation of the Rand and expectations of reduced production in 2016 have put further inflationary pressure on food prices. Prices of wheat, the closest substitute for maize, are also increasing in both countries and for similar reasons.
This rise in food prices is likely to reduce consumers’ purchasing power and will certainly worsen the food security situation in the country. The aim of the FAO report “How do food price increases affect households’ consumption in Lesotho” is to quantify the likely decrease in food consumption and identify which households will suffer most.
Impact on the food security of Basotho poorest families
The study shows that the price increase will have different impacts on different socio-economic groups. The poorest and least endowed households will be most directly affected by the price shock. The report indicates that, in order to maintain household food consumption unchanged, every percentage increase in the price of cereals should be matched by a 0.4 percent increase in income. If increases in total income will only come from social protection schemes, in order to allow the poor to satisfy their minimum food consumption needs, the amount of the CGP cash transfer – which represents 20% of the minimum subsistence basket of a family per month – will have to increase by 2 percent for every percentage point increase in the price of cereals. The increase registered thus far (December 2015) in the retail maize price was approximately 15 percent at the national level, which calls for an increase of almost 30 percent in the amount of the cash transfer.
The study also finds that vegetables are an important food item in Lesotho. Poor households spend around 65 percent of their income on food and 20 percent of this amount on vegetables. This confirms the adequacy of complementing cash transfers with home gardening kits.
The home production allows families to save on expenditures on vegetables and allocate more cash resources to the purchase of staple food and other commodities.
To mitigate the impact of the prevailing drought and food prices increases, FAO is supporting the Ministry of Agriculture and Food Security and the Ministry of Social Development to complement the Child Grants Programme with home gardening and nutrition education.
FAO has received so far funds from the European Union (ECHO – European Commission Humanitarian Aid and Civil Protection Directorate) and the UN Central Emergency Response Fund (CERF).
More information on FAO Lesotho resilience building activities with its partners is available at: www.lesothocsa.com
Elisabeth Tsehlo, Communication and Coordination Assistant, FAO Lesotho