Tariffs on Food Imports Hurt Consumers.

Every night, the number of hungry people in sub-Saharan Africa runs about 230

million people. Most sub-Saharan countries depend on food imports and foreign

aid to feed its people. Imports put pressure on the currency exchange rate,

creating currency instability and depreciation. However, using tariffs to limit

importation of agricultural commodities and poultry could exacerbate food

shortages and worsen the plight of poor in our societies. Increasing food

production takes strategic planning, and Ghana must pursue policies that will

not disrupt Ghana's macro-economic gains.
Ghana spends about one billion dollars in food imports every year. The items

imported include wheat, rice, poultry, beef, sugar, and others. Commodities

prices surged in 2010 and are projected to go higher this year, and Ghana could

face a higher food import bill. Clearly, Ghana's reliance on food imports to

meet its food security needs mean Ghana cannot sustain a stable currency, and

maintain a reasonable level of foreign reserves. Unfortunately, higher tariffs

will not help but hurt Ghanaians, especially at a time the world faces a crisis

in food security.
Recent reports on production figures from the United States Department of

Agriculture (USDA) support higher grain prices in 2011. Russia, the 3rd largest

producer of wheat, is facing a major drought. Pakistan the 3rd largest exporter

of rice after Vietnam and Thailand could face production cutbacks due to floods,

in 2010, in key planting regions. Australia, a major exporter of sugar, faces a

production cut of about 20%.
African countries spend close to fifty billion dollars on food imports every

year. Demand for wheat is strong, and supplies are tight. Egypt had a 600,000

metric tons order canceled by Russia. For USA farmers, the cancellation of

orders by other exporters means a boost in food exports and more profits. United

States could be the only country with free stocks of wheat for export. This food

import bill limits foreign reserves and wrecks the current account balance of

poor sub-Saharan countries.
In the mid of December 2010, wheat traded at $7.50 per bushel or $277 per metric

ton. This is an increase of 50% compared to the price in January 2010. The price

of rice has jumped about 40% over the price from this past spring 2010. Also,

the price of corn has jumped almost 100% when compared to the lows of 2009. And

sugar is trading at a 30-year high.
The surge in price means, in 2011, the average Ghanaian will pay a higher price

for the same portion of rice or for a loaf of bread or a bowl of porridge. The

possibility exists that some sub-Saharan countries could run out of wheat for

bread, and sugar.
Recently, some Sub-Saharan governments have increased tariffs as a way to deter

food imports. This policy could lead to serious shortages and political

instabilities. Imposing higher tariffs on food imports will limit the amount of

food imported and consumers will eventually pay a higher price than before

tariffs were raised.
The American Farm Bureau Federation (AFBF) has already predicted that the price

of wheat could jump to over $9 per bushel on the Chicago Board of Trade.

Already, US wheat exports are up about 35%. Some research organizations in Japan

have forecasted below average rice and wheat harvests in India and Southeast

Asia.
Sub-Saharan Africa should guard against higher food prices by finding ways to

boost the commercialization and investments in food production. However,

increasing tariffs on food imports are not a viable solution because increasing

the level of food production usually takes long-term planning. Governments in

the sub-region must reduce the level of tariffs and build buffer stocks.

President Mills' recent budget imposed new tariffs on importation of food items.

Most Sub-Saharan countries putatively project better food production figures

than can be actually achieved. This leaves consumers in the region to face food

shortages and higher than normal prices. Ghana's food import bill could be

higher than the foreign exchange generated from the sale of crude oil, in 2011.

As the prices of agricultural commodities go up, more foreign exchange will be

needed to support the same level of food imports, and Ghana's foreign reserves

will dwindle.
A way to boost food production would be to aggressively invest in commercial

farming, and pursue modernization of agriculture. Ghana's Millennium Challenge

Account offered a program to commercialize agriculture, but commercialization

would probably be difficult unless it is supported by a program for farmers to

effectively merchandise commodities. As governments invest in machinery and

equipment with the hope to boost food production, farmers, traders and the

private investors must have a transparent system of buying and selling

commodities.
The Government of Ghana could provide the seed capital for a centralized cash

grain marketing system across the sub-region. This will attract investments in

agriculture. The grain merchandising system will lay a foundation for trading

cash grain basis, which would link farmers, transportation owners and buyers on

a common trading platform. This linkage of all participants in the agriculture

value chain is called a centralized grain cash market.

The merchandising program could be boosted with price support system, where the

governments will guarantee farmers a reasonable minimum price for commodities

like rice, corn, millet, soya and cow peas. Government purchases under the price

support program will go to the buffer stock. As prices soar above normal levels,

the government could release food from buffer stocks to mitigate surging prices

on the local markets.
By establishing a centralized cash market system for grains in Ghana, the

government could network in West Africa through NEPAD, and enhance grain trading

to cover the major grain markets in West Africa. The food staples are basically

- rice, gari, wheat, and corn – the same across West Africa. This means the

markets across the sub-region could be linked, creating a huge commodities

market. This would boost intra West Africa grain trade.

According to consultants hired by the World Bank, and Ghana's Ministry of

Finance, and Ghana's Security Exchange Commission, three separate attempts to

start a commodities exchange in Ghana failed and could not go beyond the level

of a feasibility study. An exchange cannot be viable without an underlying

transparent cash merchandising market. The consultants probably do not

understand that a commodities market and futures trading relies on an underlying

cash market.
The failure could be due to the approach, which is the Warehouse Receipt System

(WRS). All previous attempts to start a commodities exchange were based on this

failed WRS approach. The WRS relies on huge government infusion of cash and does

not rely on innovation and leadership from the private sector.

Importation of food limits Ghana's economic development by putting excessive

downward pressure on the cedi, and depreciates the cedi against foreign

currencies. According to the United States Department of State, Nigeria imports

over five billion dollars of food every year. This month, the UN Food and

Agriculture Organization's monthly food price index jumped for the sixth

consecutive month to 213.5, a level seen since the food riots of 2008.

Sub-Saharan Africa must boost food production or risk wrecking macro-economic

gains achieved so far. The World Bank says, “as a result of food insecurity,

poor people eat less, switch to cheaper foods, or forgo spending on health and

education. High food prices not only worsen malnutrition and poverty, they

aggravate the conditions of conflict, instability, and drought

The author, Kofi Amoabin, is a consultant on commodities trading and the energy

markets. Previously, Mr. Amoabin served as CEO of Chicago Futures Investment

Group, Inc. Send comments to: [email protected].