Wheat Prices in EA To Go Up Over Russia-Ukraine Crisis, Bad Weather

East African countries could be forced to spend more on wheat imports in the remaining part of the year as world production is expected to fall due to poor weather and fears of political instability in Russia and Ukraine, which supplies 17 per cent of the global demand.

A wheat farm in Nanyuki, Kenya. Local production cannot meet current demand. Photo/Joseph Kanyi

A wheat farm in Nanyuki, Kenya. Local production cannot meet current demand. Photo/Joseph Kanyi

The decline is likely to cause a scarcity of the cereal in the international market, further pushing up global prices as countries scramble for the limited supply.

All the five East African states suffer wheat deficits and rely heavily on imports to meet demand, which far outstrips local supply. The bulk of wheat imports into the EAC countries come from Ukraine and Russia.

According to the latest forecast by the Food and Agriculture Organisation (FAO), world wheat production this year is forecast at 702 million tonnes, down two million tonnes from March estimates and two per cent lower than last year’s record harvest.

Global wheat prices stood at $323.6 a tonne in March, up from $294 in February, according to the International Monetary Fund’s Commodity Market Monthly report.

FAO said reduced planting in Canada — one of the major wheat producers — may result in a 22 per cent drop in production.

Analysts said global exports could suffer as a result of the crisis facing Russia and Ukraine. Fears of political upheaval in Ukraine could also push up the world prices, as it accounts for six per cent of the world’s wheat export market.

It is also feared that drought in Russia, Ukraine and the southern “wheat belt” in the US may also push up prices.

Forecasts also show that production could decline in Australia from last year’s above-average level, mainly because of dry weather conditions. China and India are, however, expected to record good harvests.

FAO said production in the US may rise by 3.5 per cent, but only if there are good yields from spring planting. The increase in wheat prices would be a major blow to EAC countries struggling to balance their budgets by reducing a ballooning import bill.

Cereal Millers Association of Kenya chairman Diamond Lalji foresees an increase in wheat prices in East Africa.

“Prices will continue increasing until December when we expect wheat from Argentina and Australia to enter the market. This will also depend on whether the two countries record good crop harvests in December,” said Mr Lalji.

Fears of political turmoil in Ukraine have helped push up wheat prices since February. Kenya, for example, according to Mr Lalji, imports about 900,000 metric tonnes per year, the bulk of the consignment coming from the two countries.

Local production, on the other hand, has stagnated at about 250,000 tonnes due to various reasons like climate change, land subdivision and poor soil quality.

“Despite giving farmers good prices for the crop, production has stagnated at between 230,000 and 250,000 tonnes. As a result it will be difficult for millers to ensure that wheat flour is affordable for the common man,” said the Cereal Millers Association chairman.

Anthony Kioko, the chief executive officer of the Grain Growers Association, is still optimistic that production will be good this year, adding that there is nothing to suggest there will be a decline.

“The main harvesting season in Kenya is July-August and at the moment there is nothing to suggest yields will be low,” said Mr Kioko.

The CEO is pinning his hopes on the good rains the wheat producing areas of Narok, Eldoret and Mt Kenya area are expected to receive in the on-going long rains season. All the EAC countries are struggling to increase local production as demand continues to rise.

Data from the United States Department of Agriculture shows that Kenya not only produces the highest volume of wheat in the EAC, but also imports the highest amount.

Averages for the past five years, including estimates of 2012/2013 financial year, show that Kenya produced 247,000 tonnes of wheat on an area of 130,000 hectares but imported 879,000 tonnes.

Last year, Kenya’s agricultural sector — the largest contributor to GDP — decelerated to 2.9 per cent from the previous year’s growth of 4.2 per cent, new data shows.

“Apart from rice and wheat, most cereal crops recorded significant declines in production during the review period,” said the Economic Survey 2014 released last week. “The rains played a major role in the underperformance, given that the country’s agricultural sector is rain-fed.”

Tanzania produced 93,000 tonnes on an area of 96,000ha and imported 608,000 tonnes in the same five-year period. Uganda produced 24,000 tonnes on an area measuring 14,000ha but imported 155,000 tonnes.

Rwanda produced 81,000 tonnes on an area of 58,000ha and imported 16,000 tonnes while Burundi produced 9,000 tonnes on 10ha but imported 5,000 tonnes.

The average production per hectare is 1.5 tonnes/ha, with the highest being Kenya at 2.2 tonnes/ha and the lowest being Burundi at 0.9 tonnes/ha.

The United States Department of Agriculture notes that the EAC will cumulatively import about two million tonnes of wheat annually, which is double the total from 10 years ago, due to a growing population.

However, it is unlikely local farmers will benefit from the increased demand due to low production.

In Tanzania, for example, wheat is the preferred food grain in towns, while the rural population lives mainly on other cereals. “Unless a determined effort is undertaken in the research and development of wheat, Tanzania’s wheat production will remain inadequate for a long time,” said the FAO.

A study conducted by the International Maize and Wheat Improvement Centre and the International Food Policy Research Institute, released in 2012, found that Rwanda, Burundi and Uganda had the best wheat potential when factors like soil fertility, production conditions and links to markets were considered.

The study also found that the demand for wheat is growing at a faster rate in Africa than that for rice, another staple crop on the continent. Mr Kioko blames land subdivision, high cost of inputs and climate change for the low wheat production in the EAC.

– The EastAfrican