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Agricultural prices stabilise: this year, thanks to a strengthening global economy, demand for non-fuel commodities has strenthened--but higher production has left prices reasonably stable.

Market conditions for agricultural commodities are influenced principally by weather and farmgate prices. Non-fuel commodities are extremely vulnerable to El Nino weather patterns which can damage crops through protracted drought in some growing areas and heavy rainfall in other regions and cause supply problems. In 1997-98 season, the climatic effects of El Nino led to large draw-downs of inventories and an increase in commodity prices.

This year, demand has picked up as the global economic recovery has gathered momentum. The World Bank expects prices of cereals (wheat, maize, barley and soybeans) and beverages (coffee, cocoa and tea) to strengthen further. Since most commodities are priced in dollars, a weaker greenback reduces costs (in local currency terms) to importers outside America.


In 2002, Africa, led by Kenya, accounted for almost one-third of global tea exports, totalling 1,418,869t, according to International Tea Committee in London.

This year, Kenya hopes to grow 295300m/kg of mainly 'black teas' that command higher price premiums compared to Indian teas. But recent hot, dry conditions in major growing areas will affect the prospects for 2003 crop. The Tea Board of Kenya reported that total production from January to April was 90.7m/kg, down 7.5% on the same period of 2002.

Uganda has invested over $200m on tea plantations and factories and the 2003 crop is projected to rise by 2,000t to around 36,000t. Mozambique is expecting a harvest of 30,000t, and many Zimbabwean farmers are now turning to tea. The Zimbabwe Tea Growers Association predicts 2003's crop at 24,399t. Last year's tea exports of 17,000t-were worth $18.4m.

Rwanda has also revived its tea industry and output last year reached 17,000t with export proceeds of $21m. The government has begun privatising 11 tea estates and four processing factories.

Mombasa Auction price for 'best broken pekoes' averaged $1.90/kg between January and June, up from $1.79/kg in 2002.


The International Cocoa Organisation (ICCO) has upgraded its 2002/03 estimates for the global crop and grindings by 5% and 4% respectively. Total production of cocoa beans--led by West Africa--is now forecast at 2,996,000t (up 146,000t on the previous season), against world grindings, or consumption, of 2,976,000t. The African crop will amount to 69% of global cocoa output, followed by Asia (18%) and the Americas (13%). West Africa remains the 'heartland' of the world's tropical cocoa-belt.

Fears of widespread disruptions to harvesting, transportation and marketing of the Ivorian crop have proved unfounded. The African harvest is expected to amount to 2,059,000t, with Cote d Ivoire producing 1,280,000t, Ghana 450,000t--the highest for 31 years, Nigeria 165,000t and Cameroon 130,000t. Outside Africa, important producers are Indonesia which produces 450,000t and Brazil which produces 145,000t.

Some analysts envisage a modest world surplus of 20,000t to 30,000t for 2002/03, thus breaking a two-year cycle of deficits. Futures prices on London and New York commodity exchanges have weakened since May on expectations of rising 2003/04 supplies.

Production from major origins--Cote d'Ivoire, Ghana, Indonesia and Nigeria--is expected to surge over the medium-term. Next season's Ghanaian crop is projected at 500,000t while Nigeria has set a target of 600,000t by 2006.

On July 10, the September contract dipped below 1,000 [pounds sterling]/t, for the first time in 15 months.


The International Coffee Organisation (IOC) estimates the 2002/03 world crop, ending September, at 118.4m bags--the highest in 37 years--against consumption of 107.9m bags. Brazil remained the biggest producer, with 47.26m bags representing 40% of world's total. The IOC reports total output as expanding at 3.6% annually, versus a demand less than one-quarter of the globe's population drinks coffee--mostly in wealthier countries. In many developing countries, higher retail coffee prices restricts consumption to higher-income groups. AcCording to a US Department of Agriculture (USDA) study, Indonesia consumes just 0.5kg per head compared with Denmark's 9.8kg per head.

Farmers in sub-Saharan Africa, Asia and Latin America who have suffered heavily from a five-year price slump are hoping for better earnings in the new season. The IOC's projection is of a supply-deficit of 6-10m bags in the 2003/04 crop year. If these figures prove correct, this will help revive the current low


Zimbabwe's 2003 tobacco auctions--the main source of foreign exchange earnings--is proving to be a low-key event. Njodzi Machirori, chairman of the Tobacco Industry & Marketing Board, estimates that between 100m/kg and 120m/kg of the leaf will be sold at annual auctions which end in October. By contrast, last year's figure was 165m/kg--itself down from 201m/kg in 2001. The Zimbabwe Tobacco Association (ZTA) predicts 2003's harvest at 85m/kg, while some farmers have warned that the new crop may dip below 67m/kg, the lowest since independence in 1980. According to the ZTA, there are now 25,000 black, small-scale farmers, compared with 6,600 in 2001 and about one-third of the 1,600 white-owned, large-scale commercial farms are still operational.

In 2001, Zimbabwe was the world's second-biggest exporter of flue-cured tobacco and supplied about 20% of global demand, which netted $600m in revenues.

Malawi is also reliant on the tobacco industry, which provides over 60% of total exports, employs 70%-80% of the country's workforce, and contributes 10% to its GDP. The Commercial Bank of Malawi projects 2003's crop at 145.6m/kg, up 5.4% on the previous year, earning around $191 m.


Olive oil production in Tunisia should surge this year compared to the drought-affected levels of 2002. The USDA projects a 100% increase in Tunisian output in the year to November, to 70,000t, a sharp increase in the record lows of 35,000t in 2002. Olive groves cover around one-third of the country's arable land. Total olive production this year is estimated at 340,000t, but output still lags behind average harvests of 625,000t/year over 1997 to 2001. The USDA projects olive oil output to increase further next year to 125,000t, of which 70,000t will be exported, mostly to Europe. Tunisia enjoys preferential trade agreement with the EU. Olive oil prices during the first-half of this year were $3,447t, up from last year's average of $2,901t.


The authoritative German statistical agency, F.O. Litch, predicts global sugar production in the 2002/03 season, ending August, at a new high of 142.6m/t--up 11m/t on two years ago. Africa produces less than 10% of total cane output, the major growers being South Africa, Egypt, Sudan, Mauritius and Swaziland. This year South Africa reported its third biggest harvest since 1980, totalling 2.93m/t of sugar from 23m/t of cane.

The Mauritian crop is pegged at 620,000t, of which 507,000t will be exported to the European Union (EU) countries. Ethiopia plans to exports of 68,000t of raw sugar to the EU, worth over $20m, under the EU Everything But Arms Initiative. Tanzania's crop has also risen this year by 15% to 190,120t.

In the first-half of 2003, raw sugar prices were 7.6c/lb, compared to 6.2c/lb in 2002. A recent OECD report said prices should remain quite low until 2008 because of ballooning supplies from the low-cost producers--notably Brazil and Thailand.


Uganda is poised to become a leading edible oil producer after the completion of a $155m industrial project, funded by the International Fund for Agricultural Development, the Ugandan government and private regional investors. Bidco Oil Refineries (Kenya) are establishing plantations on 40,000 hectares to produce 200,000t of crude palm oil per annum, saving $40m annually on imports. Today, palm oil comprises about 90% of Uganda's vegetable oil imports.


South Africa's output of macadamia nuts is expected at 3,100t of kernels compared with 2,878t in 2002. The USDA attributes the large harvest as due to "good moisture content in the soil, favourable temperatures and increasing numbers of bearing trees entering production." The country has potentials of boosting annual production by 20%, thereby becoming a major player in the global macadamia industry, on level with Australia, in the coming years.


Buyers of African birds-eye chillies may again experience supply problems and higher prices because of reduced plantings, poor weather and ongoing problems in Zimbabwe. The 2002 African crop--mainly from Kenya, Malawi, South Africa and Zimbabwe--was low, and European importers have had to pay higher prices.. Harvests in Malawi and Zimbabwe are expected to be in line or lower than last year.

In early 2003, chilli prices rose to about $4,400t in Europe. Southern Africa ranks among the world's top exporters of birds-eye chillies, alongside Kenya, India and Pakistan.


Vanilla prices have risen sharply this year because of exceptionally poor harvests from the main growing regions--notably Madagascar. Increasing demand, as well as low carry-over stocks, has also pushed prices higher. Vanilla--used as a flavouring--is obtained from the pods of a tropical plant. The 2003 global harvest is anticipated at 900t, down 75% on previous harvests, while global demand could total 1,500t. The Madagascan crop, the world's largest representing 90% of total output, is expected to be only 500t, half of the previous year's level. Uganda may, at best, produce about 100t--120t.

Prices will definitely remain strong well into mid-2004 when new crops reach the markets. Higher prices may affect the quality of the 2003/04 crop due to the harvesting of unripe, immature beans. Expect European prices to hold at around $300t in the coming months.
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Title Annotation:Africa
Author:Siddiqi, Moin
Publication:African Business
Geographic Code:60AFR
Date:Aug 1, 2003
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