From global perspective to local context
Ukraine and Russia, two of the world’s biggest exporters of grains and oilseeds are at war. The two countries combined account for 12% of the traded calories worldwide.
Hence, world food markets reacted nervously when the invasion started in February. Prices skyrocketed immediately and food price indices such as the FAO index reached new all-time highs.
In addition, Russia is one of the biggest suppliers of fertilizers and their components. The shock hit tight input and food markets which had already seen high prices before the war due to Covid-19, climate change and other conflicts.
As an example, the case of Ghana: According to a June press release on the African Union website, the Africa Fertilizer Financing Mechanism (AFFM) was to extend a $2 million partial trade credit guarantee to ETG Inputs Ghana Limited to support the delivery of fertilizer to 200,000 smallholder farmers in parts of Ghana. The move was supposed to ease the current shortages in supply and boost yields, food security, and incomes of farmers in designated regions.
“Under the agreement, ETG Inputs Ghana Limited will enable the delivery of 10,000 metric tons of fertilizer to wholesalers who will distribute it, via retailers, to farmers in the regions. The credit enhancement mechanism is expected to reduce risks associated with suppliers selling fertilizer to wholesalers on credit, which can result in farmers having limited access to good quality fertilizer,” states the release.
High rate of imports from Ukraine, big impact on food security?
After assessing the global impact of the war against Ukraine, scientists and development organizations tried to figure out which countries might be affected the most. For instance, they had a look at the share of imports and imported calories per country from Ukraine and Russia.
A first assumption was that countries that import high shares of wheat from Ukraine and Russia might also be the ones most severely affected by the war.
However, a more in-depth analysis revealed that local contexts matter. The analysis found that the following factors affect local vulnerability and thus food security:
- Different dietary habits
- Domestic production capacities
- General trade patterns
- Food stocks
- Fertilizer import and application rates
Different local situations
In order to account for the local contexts, research institutions such as IFPRI and AKADEMIYA2063 with funding from different donors have started with individual country analyses.
IFPRI has a look at the recent rapid rise in food, fuel, and fertilizer prices as it is raising concerns about economic stability, food security, and poverty in developing countries. The CGIAR research center used its economywide model (RIAPA) to estimate the effects of the price shocks for a wide set of countries and published them in briefs.
These briefs examine the diverse effects, on-farm and off-farm, on GDP, employment, production, household consumption, inequality, poverty, and diet quality for each country. All country briefs are available on the AgriLinks website.
The researchers are trying to quantify the impact of the war on national and agricultural GDP, employment, household income as well as poverty, and nutrition rates. Then their next aim is to provide locally adapted policy recommendations.
Which parameters to look at
The studies look at world market price increases for specific products such as wheat, maize, vegetable oils, fertilizers, and energy/fuel. How important are these imports and can these products be substituted locally?
The researchers identify sectors that use those products as inputs to their supply chain and assess the impact on the GDP and employment. This approach allows accounting for changes in household income through the affected workers and consequently an estimate of the effects on national poverty rates and food security.
In the case of fertilizers, the researchers have a look at the cultivated crops the fertilizers are used for, the application rate and the possible reactions of farmers to price hikes in order to estimate changes in productivity.
Ultimately, the research provides clues about the terms of trade of a specific country by comparing the effects of higher import prices with higher export prices.
For example, countries like Nigeria and Ghana, which export oil or natural gas, are the ones benefitting from positive terms of trade. The reason is that the additional income derived from oil and gas exports is higher than the additional costs caused by the price increase of the imported products.
For countries producing fertilizers, such as Nigeria and Egypt, this crisis also presents a window of opportunity to diversify their exports and export destinations, if they develop a competitive fertilizer production industry.
Another focus area of the research is price transmissions from global to local markets.
Locally produced foods can be affected for example by rising input prices or by an increase in demand because of substitution effects.
This is closely related to the question of whether farmers are benefitting from these price increases. For instance, it might influence poverty rates since rural households are disproportionately affected by poverty.
GIZ involvement and additional research
Within GIZ the Sector Project Agriculture is in exchange with various researchers and projects in Africa about the situation on the ground.
There is clearly a lack of and a need for evidence in the countries on the effects that the war is most likely to have on the countries. Often basic information and data on imports, production capacities, etc. are missing or are not reliable.
Therefore, the Sector Project Agriculture together with SNRD Africa has called for expressions of interest in projects or countries in such studies. It received an impressive number of 16 country replies. Currently, there’re ongoing discussions with researchers and projects to assess the possibility to extend the research work and include countries of interest.
Right now all research tries to simulate and project what the effects of the war might be by using real data. In the future, more research with a focus on data collection and qualitative interviews in the countries will be needed to measure what the real impacts are over time.
Another interesting point will be to assess the impact of different fertilizer alternatives on productivity as well as to assess the possibility to substitute for example wheat or sunflower oil with local products.
BMZ emergency fund
As a response to the ongoing crisis caused by the war in Ukraine, the German Federal Ministry for Economic Cooperation and Development (BMZ) through GIZ will make additional funding of approximately EUR 30,000,000 available to GIZ projects active in the areas of rural development and agriculture.
Besides short-term measures such as support for agricultural production inputs, the focus will be on improving the resilience of smallholder farmers and SMEs in the agricultural sector. Allocation of the funds will be facilitated by different projects, amongst others the Fund for the Promotion of Innovation in Agriculture, the Global Programme Food and Nutrition Security, Enhanced Resilience and the Global Project Sustainability and Value Added in Agricultural Supply Chains.
Current research and studies
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AKADEMIYA2063: The Expertise We Need. The Africa We Want.
Kathrin Cordes, Sector Project Agriculture, firstname.lastname@example.org