Communiqué on the Regional Workshop on Risk Management Mechanisms towards Structured Grain Trade and Food Security in Eastern And Southern Africa

On 16-18 December 2014, approximately 40 key stakeholders from the Africa Union, Private Sector, Governments, Bilateral agencies, farmer representatives, financial and insurance institutions and development partners in Eastern and Southern Africa region met in Addis Ababa, Ethiopia to  identify and formulate appropriate and specific trade and food security risk management interventions that will boost  availability, affordability and access to food. 1.    Preamble

In the Eastern Africa region, the trade intensity for grains amongst the partner countries is higher than for any other commodity. Generally, the commodity flow is from the region or country with the higher production to the neighboring countries. However, it is observed that commodity trade flows in both direction across the neighboring countries with larger volumes being from the country with higher production. Also, depending on the degree of agro-industrial development and the extent to which a country in anchored onto the global value chain, often semi and/or highly processed grain products flows bilaterally although in smaller quantities. However, this small volume of trade flow from the low producers is mostly attributed to trading along the border markets by smallholders.

It is well know that grain trade within the eastern and southern region, is often hampered by the significant risks involved.  To mitigate these associated risks in grain trade and food security, considerable progress has been made over the last couple of years. Some of these risk management processes involve disaster, recovery or coping mechanism strategies.

It is from this context that EAGC in partnership with UN Food and Agriculture Organization (FAO) and Food Trade ESA hosted a high level regional workshop  that brought together key stakeholders from the Africa Union, Private Sector, Governments, Bilateral agencies, farmer representatives, financial and insurance institutions, researchers and development partners from various institutions in Eastern and Southern Africa region.  This workshop was held from 16th to 18th December 2014, at the Intercontinental Hotel in Addis Ababa, Ethiopia. The forum was aimed at assisting Governments and the Private Sector in the Eastern Africa Region to identify and formulate appropriate and specific trade and food security risk management interventions that will boost food production, availability and access to food for the most vulnerable. Specifically, the workshop was intended to achieve:

a)    Review the existing risks and risk management mechanism available in the region.
b)    Share experience of the successes of risk management strategies  
c)    Propose, recommend and lobby for alternative frameworks to mitigate risks at different levels.
d)    Review the impacts of government interventions on the private sector and assess their role in risk management

2.    Workshop Deliberations

The high level meeting received reports from various stakeholders who are promoting or providing products and services and various mechanisms for risk management and mitigation. This was through five sessions including:

•    Session 1: Overview and Review of Existing Risk Management Mechanism in Eastern and Southern Africa region.
•    Session 2: Lessons Learnt and Experience Sharing on Existing Risk Management.
•    Session 3: Commodity Risk Management & Commodity Exchange Experience on Agricultural risk Management
•    Session 4: Risk Management through the Value Chain – Farmers, Traders, Exporters Processors
•    Session 5: Financial Risk Management
•    Session 6: National and Regional Policy Risk Management

Below are the key observations noted during the technical sessions:

a)    Production of Grain and Cereal in ESA is predominantly small holder (80%). Small holders produce low quantities, which are dispersed and generally not efficient due to high production costs, not mechanized, low usage of certified inputs seeds & fertilizers and hence face significant PRODUCTION RISKS including weather exposure including drought and floods, pest & diseases etc;

b)    Producers are exposed to MARKET RISKS. Most of them produce without knowing who to sell to and at what price and they only hope for a buyer who will offer good prices. Usually producers are located far from the markets and often sell at farm gate to small traders. The producers are not usually WELL INFORMED and the traders have better knowledge of market prices/trends. The information ASSYMETRY between producers and traders at time puts the producer at a disadvantage in price negotiation and discovery and therefore faces a PRICE RISK;

c)    Traders who provide liquidity and place utility in addition to aggregating produce from the dispersed smallholder producers and re-sell to the larger traders or processors/millers are often viewed as exploiters/middle men and not favorably regarded. These traders are predominantly informal traders and they rely on their own savings to provide these services and generally may NOT ACCESS financial facilities;

d)    Governments often take intervention measures to control trade by imposing trade restrictions such as Export/Import bans usually ad-hoc, not predictable and therefore creates a POLICY RISK to the entire value chain;

e)    Processors require consistent, high quality and quantity, competitively priced raw materials/commodity input to run their processing plans at optimal levels. They therefore face SUPPLY RISKS for raw materials and are also exposed to PRICE RISKS and POLICY RISKS and;

f)    Various measures and mechanisms have been developed and put in place to manage and mitigate Risks for as to increase food trade and food security. These include Commodity/Crop Diversification, Warehouse Receipt Systems, Commodity Exchanges and Insurance products; all have had various degrees of success in the ESA region.

3.    The Workshop Recommendations

 

The workshop made the following recommendations for action:

a)    INFORMATION is critical in Risk Management.  The Regional Agricultural Trade Intelligence Network (RATIN) is one tool that provides information and has potential to inform stakeholders including government on appropriate actions to take towards applying risk management.  Investment in DATA and INFORMATION collection and analysis at all levels is critical;

b)    REGIONAL APPROACH to Risk Management in Agriculture Production & Trade for improved Food Security. It’s important to refer to the Regional Food Balance Sheet – RFBS, in making policy decisions that impact on the regional trade in food. However, the RFBS  need to be expanded and supported to collect timely, reliable and accurate information of crop production estimates and stock levels in the supply chain with private and public sector;

c)    Planning TIME PERSPECTIVE for Risk Management initiatives should take Short Term, Medium Term and Long Term Regional perspectives and focus should be more on medium to long term targets.

d)    Production RISK management to include DIVERSIFICATION in crop and enterprises in addition to irrigation, climate smart agriculture such as conservation/minimum tillage;

e)    EFFICIENCY & COMPETITIVENESS improvement in Agricultural Production. This requires special support for development and investments in large scale commercial production systems for grans and cereals and consolidation/aggregation of smallholder to get together and operate a larger farms for improved efficiency and competitiveness through mechanization, irrigation and improved economies of scale;

f)    Improved and continuous DIALOGUE between public and private sector in a PPP model to ensure effective FEEDBACK mechanisms as well as develop and implement practical solutions and risk management mechanism – ATPAF ESA will provide the coordination of national and regional organizations involved in  policy issues;

g)    Coordination in Government ministries to work towards common goals and not work in “silos” pursuing different or conflicting objectives that may lead to increased risk and;

h)    Promote Industry SELF REGULATION,-discipline among practitioners through Code of Practice, while licensed traders play by the rule and obviate government regulation and policy support;

i)    Improve RISK ASSESSMENT capacities and conduct risk profiling. This will involve development of a Risk profiling FRAMEWORK and conducting RISK ASSESMENTS that will aid in developing Risk Management Index;

j)    Fragmented and isolated interventions have failed to generate broader impact. There is clear need for a more COMPREHENSIVE and COORDINATED APPROACH to Risk Management that takes into account the whole range of risks faced in the agricultural sector;

k)    Government RISK MANAGEMENT support similar to the Canadian, US and EU to provide INCOME SUPPORT instead of PRICE RISK REDUCTION and;

l)    Address the DISCONNECT between Research, Academia and Industry (including Agriculture) in developing solutions leads to wastage, inappropriate solutions and problems remain not solved.

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