Hard to tame inflation with rain-dependent farming

Food inflation is likely to present the biggest challenge to macro-economic stability and GDP growth in the East African region in the long-term as long as our agriculture remains predominantly reliant on rain.
Edward Ojulu
Edward Ojulu

Food inflation is likely to present the biggest challenge to macro-economic stability and GDP growth in the East African region in the long-term as long as our agriculture remains predominantly reliant on rain.

Indeed, while presenting the Monetary Policy and Financial Stability Statement for first half of 2013 early last month, the governor of the National Bank of Rwanda (BNR), John Rwangombwa pinned hope for Rwanda to achieve this year’s projected growth of 7.5 per cent partly on moderate inflation in global and regional trading partners.

Lower rates of inflation from trading partners reduce the risk for imported inflation. In simple terms, there is no risk of importing goods expensively which in turn will trigger prices increases at home if inflation is stable in Rwanda’s major trading partners.

The current situation at home and in the region, that shows food prices going up, due to short supply is therefore something to worry about.

Uganda, Rwanda’s northern neighbour and key source of imports, has seen inflation surge from 5.1 per cent in July to 7.4 per cent in August on account of high food prices. As was the situation in the whole region, Uganda experienced very short first rain season that resulted into a very poor harvest and hence little food.

Last week, the Bank of Uganda had to revise upwards its benchmark lending rate, the CBR, by one percentage point, to 12 per cent to tame inflationary pressure.

The rationale here is that commercial banks will respond by increasing lending rates that will reduce money in circulation as some would-be borrowers either get discouraged or borrow less, if they must.

That policy will certainly offer only partial relief and one cannot fault the central bank for responding that way because in reality, any central bank has only monetary policies such as that to deal with inflation.

In Kigali city markets food prices have been on the rise over the past month with traders attributing the situation to shortage of supply—meaning farmers are not producing adequate quantities to meet market demand. This will certainly have an impact on the country’s inflation rate.

The challenge is emanating from the supply side of the region’s main economic activity, farming whose output is hugely influenced by natural weather conditions.

Farmers in the region are expecting the second rain season to start this month. In some parts it is already raining, but what is not known is for how long it will last.

Yet in some parts, instead of joy, rain has come with misery associated with floods and landslides that have not only caused deaths but also made planting practically impossible.

By the time farmers recover from the havoc, the rains will be no more and there will be no harvest to write home about and food prices will shoot higher.

Predictable and sustainable economic growth will therefore require taming whether –by empowering farmers to produce all through the year—come rain come sunshine.

One simple way is through investment in simple technology to harvest water during times of plenty or floods for irrigation during dry weather.

I have seen maize farmers watch helplessly as crops about to mature wither when all that they needed was just one week of water. Water harvesting and storage can therefore mitigate the effect of short rain seasons on food production and improve macro-economic stability.

As the globe gets warmer (under a new phenomenon called global warming), we have been warned that weather conditions can only become extreme—that is very hot and very wet.

Both situations are not conducive for farming and the only way out is to strike a balance. For the mean time, the only feasible option is harvesting water to irrigate the crops and livestock to drink.

Only then can we accurately predict our economic growth targets without holding constant certain factors, such as weather.  

The writer is a journalist based in Kigali

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