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FAO urges integration to boost prices in market

Business Daily Africa

FAO urges integration to boost prices in market

Written by Allan Odhiambo

June 17, 2008: Africa must speed up regional integration efforts to stop the decline in returns from trade in agricultural produce and a deepening of the food security crisis on the continent, a panel of experts have warned.

The experts from Food and Agricultural Organisation (FAO) said decline in returns from trade in agricultural produce is itself a product of market fragmentation at sub-region, national and even sub-national levels.

“These segmented gaps between regional, national and domestic production and regional demand are increasingly being filled by imports of non-African origin, even in cases where tradable surpluses exist,” FAO said.

FAO, the United Nations agency that deals with global food security, said segmentation of markets had left the continent with units that are not profitable, making the sector unattractive to private investment.

“For selected strategic commodities, a common African market that transcends national and sub-regional borders offers an appropriate economic space to foster private investments in this key sector,” FAO said in a paper presented at the regional food conference that opened in Nairobi yesterday.

To increase competitiveness in the market, FAO is proposing the creation of a Free Trade Area (FTA) for Africa that will facilitate a seamless flow of strategic commodities across national borders while maintaining high profit margins.

A free trade area refers to a group of countries that have agreed to eliminate tariffs, quotas and preferences on most (if not all) goods traded among them.

It a form of economic integration that comes out of countries whose economic structures are complementary.

To ease the selection of commodities that qualify to trade under such rules, FAO said the continent should come up with a foods basket in which every item is weighted on the basis of their consumption and contribution to the foreign exchange earnings of producing countries.

The proposals for a grand FTA for Africa comes at a time when three regional trading blocs have set in motion a process that may lead to the establishment of the continent’s largest common market.

Negotiations kick-off

Trade officials from the East African Community (EAC), the Common Market for Eastern and Southern Africa (Comesa) and the Southern African Development Community (SADC) are set to meet September to officially launch start negotiations for the grand Free Trade Area.

The talks are expected to involve the council of ministers from the regional economic blocs. This plan was first made public by the outgoing Comesa secretary-general Erastus Mwencha during an extra ordinary council of ministers’ meeting in Nairobi in May.

FAO experts, however, warned that though efforts to push for an FTA are positive, there is need for caution especially when it comes to establishing a Common External Tariff (CET) by regional economic communities (RECs).

“While the individual RECs set their own CET now and for the next few years, it is important that they leave enough space for an Africa-wide CET down the road. Difficulties could arise in the future if there are different perceptions of sensitive products among the various RECs,” FAO warned.

Difficulties would arise especially where one REC has set a low CET for a product that is sensitive to another REC.

To safeguard against such pitfall, FAO proposes that a central mechanism be established under the Africa Union (AU) to issue guidelines for all members seeking to upload products on the grand FTA.

“Some supra-organisation notably the AU Commission in this case-needs to have a mechanism to review individual REC CET before these are adopted and to provide guidelines for the stand point of the eventual African CET,” the experts said.

Statistics show that investor apathy has led to a stagnation of Africa’s agricultural exports output since the 1980s capping it at around 20 percent of total exports.

Consequently, Africa’s share of the global trade in agricultural produce has dropped steadily, from 8 per cent in the 1970s to 1.3 per cent in 2006.

“Africa’s failure to produce enough domestically has contributed to progressive growth in food imports, with Africa spending an estimated $23 billion on food during 2002-2005 - significantly more than the value of exports,” FAO said.

During 2002-2005, agricultural imports accounted for about 23 per cent of total African merchandise imports while food imports alone accounted for around 90 per cent of agricultural imports and are rising.

 source: Business Daily