Food Prices Likely to Continue Rising

30 April 2011

WHEREAS the prices of most commodities have gone up due to the high cost of fuel, it would be simplistic to attribute the current food inflation to drought and fuel prices only.

Gradual price increments over time are considered normal and good for the economy because they spur production, consumption and, therefore, economic growth.

Food prices in Uganda, however, have been accelerating by the year in line with the country’s increased participation in regional and global food export.

The only observable breaks in this acceleration have happened during food crop harvest periods, with prices picking up their run soon thereafter.

It is, therefore, likely that the current escalation in food prices is more the result of shortages created by the country’s persistent ‘net food exporter position’ and its open-market policy than drought and rising fuel prices.

What this means is that food prices are likely to continue rising even after fuel prices and the weather stabilise.

acceleration timeline

A kilogramme of beans cost sh500 in 2001 and sh1,600 in 2008. Today the same quantity goes for sh2,600.

In terms of percentage increment, for the period from 2001 to 2008 the price of beans went up by 240%. In the last three years, the price has risen by over 50% The price of a kilo- gramme of meat on the other hand has gone up from sh4,500 to sh7,000, a 66% increase over the same period.

A butcher in Kampala recently explained that when he goes to Ugandan ranches to buy cows for slaughter, he competes with Sudanese traders, who are always willing to pay more.

To be able to stay in business, he has to match their price which means selling meat more expensively to Ugandan consumers.

What the butcher does not mention is that in addition to the traders who are easy to notice because they buy live cows, much more meat leaves the country today as processed to destinations where it will fetch a better price than it did in 2001.

This is true for other locally produced food. The timeline for this food price acceleration appears to be in sync with the growth in Uganda’s food exports to markets within the great lakes region as well as Europe.

HIGH demand, low supply

It is easy to understand why domestic food prices will continue to rise if we take a keen look at both Uganda’s geographical location and her assumed role in the global market.

Uganda has the second largest available land for organic food production in Africa and most of the food grown locally qualifies for organic classification simply because most of the farmers cannot afford fertiliser and pesticides.

The demand for organic food products has heightened in the past few years, especially in European markets. Little use of pesticide and fertiliser, however, has a downside, which is low production per unit land under cultivation compared to that when fertiliser and pesticides one used.

It is also true that despite government programmes like the Plan for Modernisation of Agriculture, food crop production in Uganda is still largely non-commercial.

Agricultural mechanisation is still low and most able men are either employed in low-pay jobs in urban areas or involved in quick money ventures such as charcoal burning and brick laying. Not only does this degrade the environment further, it also leaves the burden of food production to women and children.

The resulting situation in the short run is one of rising demand with no resultant increase on the supply side.

Do free markets work?

In the above scenario, proponents of ‘free markets’ argue that as prices continue to rise, local and foreign investors will get attracted to Uganda and in particular the business of farming.

This will boost production up to a point where prices even out. Whereas this could be true, because of the nature of agriculture production (takes time and is riddled with uncertainties such as weather changes) it will be long before this happens to the extent that food prices even out.

As Uganda continues to play ‘food basket’ to a region of over 350 million people plus a host of Europeans who want ‘to eat organic,’ locals should brace themselves for high food prices for a long time.

The writer is a development consultant

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