By S. Gustafson  (published on December 12, 2021)

This blog apprear originally on FoodSecurityPortal.ORG 

 Photo credit: UNICEFEthiopi/2020/NahomTesfaye

As Ethiopia’s population has become increasingly urbanized over the past decade, more and more households have come to rely on markets, rather than their own farms, for their daily food needs. This dependence means that well-functioning agri-food value chains have become increasingly vital to food security for much of the population. The onset of the COVID-19 pandemic raised serious concerns about the resilience of these value chains; while Ethiopia never closed its borders or imposed full lockdown measures, efforts to contain the virus still had the potential to disrupt the agri-food system and negatively impact food and nutrition security. A new series of working papers from IFPRI’s Ethiopia Strategy Support Program (ESSP) examines how two important value chains – the dairy value chain and the vegetable value chain – fared during the pandemic.

The studies draw on in-person survey data from February 2018 (for dairy) and February 2020 (for vegetables) and phone survey data from June and September 2021 (for dairy) and March 2021 (for vegetables). Comparison of these data allowed the authors to examine how value chains have responded and adapted to the COVID-19 pandemic. The authors used a cascading survey approach to collect and analyze data across the entire value chains, from rural and peri-urban producers to wholesalers and urban retailers.

Overall, Ethiopia’s dairy value chain appears remarkably resilient to the impacts of the COVID-19 pandemic and the associated containment measures imposed by the government. While nine percent of dairy farmers stopped engaging in the dairy value chain between February 2018 and June 2021, this decline can be attributable to rising feed prices, and potentially to a lack of access to credit and extension services, rather than to the pandemic’s impacts. Similarly, while 36 percent of milk wholesalers reported that they stopped trading dairy products within the study timeframe, they attributed this decision to increased competition within the sector and limited supply of milk and butter from rural areas, not to COVID-19. While a small number of urban retailers cited the pandemic as at least one of the reasons they stopped selling dairy products, the study found that the quantity of dairy products traded actually increased between 2018 and 2021.

Milk prices have risen steadily and significantly in Ethiopia over the past three years, matching the general high inflation seen in the country. Between 2018 and 2021, however, milk prices remained relatively stable (0.92 USD/liter in 2018 compared to 0.91 USD /liter in 2021). In addition, the amount that farmers received from the final retail price rose slightly during that timeframe. The dairy sector also did not experience a rise in post-harvest losses (as measured by quantity of milk wasted) during the pandemic.

While slightly more mixed, impacts of the COVID-19 pandemic on Ethiopia’s vegetable value chain also appear minimal. Farmers’ main concern was rising input prices; these price increases, rather than the pandemic itself or related containment measures, largely drove production decisions.

At the wholesaler level, the pandemic had more direct effects. At the start of the pandemic, the major wholesale vegetable market in Addis Ababa, the capital, was moved to the outskirts of the city to allow for more effective social distancing. Many surveyed traders reported that this relocation more negatively impacted their business than the pandemic itself. Between February 2020 and March 2021, most traders saw a loss in both number of clients and volume of vegetables traded, and the majority of these traders cited the relocation of the market as the cause.

Urban retailers also reported negative impacts from the relocation of the wholesale market. In addition, two-thirds of retailers said that they had fewer choices when it came to transportation of goods from wholesale markets than they did prior to the pandemic; while the majority of these cited the market relocation as the reason for this, 19 percent stated that it was due to the pandemic itself.

The study found significant volatility in vegetable prices throughout the study timeframe. The price of many key vegetables in household food baskets, such as onions, rose at the start of the pandemic, and many farmers initially responded by ramping up production to benefit from the increased prices. This in turn resulted in an oversupply in the Addis Ababa market, which drove farm gate and final consumer prices back down. All value chain actors—farmers, wholesalers, and retailers—reported that this price volatility was a major concern for them in the long term. It is important to note, however, that prices and price movements vary among the different vegetable crops. In addition, the volatility seen during the survey period cannot be attributed to the COVID-19 pandemic with any certainty, as the vegetable value chain in Ethiopia is generally characterized by a high degree of price volatility.

Post-harvest losses along the vegetable value chain also varied by crop. The largest losses were seen for tomatoes (11.5 percent, while the lowest were seen for onions (2.6 percent). In addition, where these losses occurred also differed widely. Tomatoes saw the highest losses at the retail level, while nearly all of the losses for cabbage occurred at the wholesale level.

Overall, the ESSP surveys suggest that important agri-food value chains in Ethiopia remained generally resilient in the face of the COVID-19 pandemic’s direct impacts.

Citation: Hirvonen, Kalle; Habte, Yetmwork; Mohammed, Belay; Tamru, Seneshaw; Abate, Gashaw Tadesse; and Minten, Bart. 2021. Dairy value chains during the COVID-19 pandemic in Ethiopia: Evidence from cascading value chain surveys before and during the pandemic. ESSP Working Paper 160. Washington, DC: International Food Policy Research Institute (IFPRI). https://doi.org/10.2499/p15738coll2.134764

Citation: Hirvonen, Kalle; Mohammed, Belay; Tamru, Seneshaw; Abate, Gashaw Tadesse; and Minten, Bart. 2021. Vegetable value chains during the COVID-19 pandemic in Ethiopia: Evidence from cascading value chain surveys before and during the pandemic. ESSP Working Paper 159. Washington, DC: International Food Policy Research Institute (IFPRI). https://doi.org/10.2499/p15738coll2.134768

By S. Gustafson

This post originally appeared on FoodSecurityPortal.org.

 Photo credit: Malingering

Prevalence of hunger and food insecurity have been on the rise in Africa south of the Sahara (SSA) in recent years after a long period of decline. In 2020, an estimated one in five people in the region faced hunger, more than double the proportion of any other region worldwide. The period 2019-2020 in SSA saw the strongest increase in annual undernourishment ever recorded. In 2020, estimated prevalence of undernourishment ranged from 10.1 percent in southern Africa to 31.8 percent in Central Africa. By 2030, Africa is forecast to have the highest number of undernourished people in the world.

In “Africa: Food Security and Agricultural Trade during the COVID-19 Pandemic” (Chapter 2 of the recent book, 2021 Annual trends and outlook report: Building resilient African food systems after COVID-19), researchers examine to what extent and through which channels the COVID-19 pandemic has exacerbated these numbers.

COVID-19 has impacted economies, food and nutrition security, and agricultural trade around the globe. The containment measures and restrictions of movement imposed by governments were important in reducing infection rates and helping overwhelmed health systems, but they also posed challenges for economic activity, incomes, and livelihoods. Economic output in SSA is estimated to have fallen by 1.9 percent overall and by 4.5 percent per capita between 2019 and 2020, compared to global declines of 3.3 percent and 4.4 percent, respectively.

The livelihoods of many people in SSA rely on exports of agricultural and food products, particularly cocoa, coffee, fruits, and vegetables. At the same time, many countries in the region rely on imported staple food commodities, such as cereals, meat, dairy products, and oils, for food security. Clearly, any disruption to trade in these various commodities due to COVID-19 lockdowns would have significant implications for incomes and food security in the region.

The chapter’s author finds that despite a global decline in merchandise trade of 9.2 percent during the pandemic, trade in agricultural and food products remained relatively untouched in the long term. Most disruptions to agricultural and food trade occurred at the very beginning of the pandemic, when lockdowns and other containment measures were first established in many countries.

These findings hold true for SSA as well. Lockdown measures began in the region in March 2020; while the strictest measures were lifted in most countries by July, no country had completely removed its containment measures as of the end of 2020. These measures included restrictions on movement of people and closure of businesses and markets. In addition, some countries imposed temporary export restrictions and relaxation of import barriers to help stabilize domestic food supply, while others imposed stricter import restrictions and food safety certification requirements to prevent the possible spread of COVID-19 through food products. Food production, processing, trade, and distribution in the region were all impacted by these various containment measures, with the most significant impacts occurring early in the pandemic.

In April and May 2020, aggregate export values for agricultural and food products of 14 countries in SSA[1] declined by between 5 and 11 percentage points from the aggregate averages seen during the same months in 2018 and 2019. However, starting in June 2020, these export values began to rebound. In the second half of the year, agricultural and food export values from the region were higher overall than those seen in the latter half of 2018 and 2019. Agriculture and food import values in the region followed a slightly similar trend but experienced higher volatility. Aggregate import values began declining in the 14 study countries by February 2020 and had dropped by 15 percent from 2018 and 2019 by May. While imports rebounded in June—similar to the movement seen for exports—they fell again in July. However, import values in the second half of the year were above their pre-pandemic levels on average.

The shifts in import and export values throughout 2020 can be explained by both changes in the quantity of goods traded and changes in import and export prices, says the chapter’s author. Global food prices fell sharply between January and May 2020 and rose just as sharply in the second half of the year; this mirrors the trends seen for both export and import values in SSA.

Trade flows themselves followed a similar trend, decreasing during the first half of the year and recovering in the second half. In April 2020, the number of export flows between two specific trading partners had already declined by 25 percent from April 2018 and 2019; in December 2020, the same export flows had increased from their pre-pandemic levels by around 7 percent. The number of import flows fell by more than 10 percent in April 2020 and rose above pre-pandemic levels in November and December. Intra-regional import flows experienced larger declines in the first half of the year than import flows from regions outside SSA.

These impacts were more significant for non-staple agricultural and food products: beverages, fishery products, cotton, tobacco, and cut flowers. Thus, the disruptions may not have immediately impacted food security in all countries. However, rising unemployment and falling incomes due to business closures, particularly in the tourism and hospitality industries, reduced food security for millions of households over the course of the pandemic.

In addition, the author points out that trade impacts varied at the country level. For example, cereal values in Ethiopia and Madagascar (both of which depend on imported cereals) experienced significant volatility in 2020 that did not follow clear pattern. In Namibia, cereal import values dropped 60 percent below average in June and remained low until October, generally following the observed global trend.

The author concludes that while agricultural and food trade were relatively resilient in the face of COVID-19, the pandemic ultimately exacerbated already acute hunger and food insecurity in Africa south of the Sahara. Food security for millions was worsened by increased unemployment, falling incomes, and generally poor macroeconomic conditions throughout the region. As a result, SSA has gotten even farther away from achieving the food and nutrition security targets laid out in the Sustainable Development Goals.

[1] Botswana, Côte d’Ivoire, Egypt, Ethiopia, Ghana, Kenya, Madagascar, Mauritius, Morocco, Mozambique, Namibia, Senegal, South Africa, and Zambia

By Alan de Brauw (published on November 17, 2021)

 Photo credit: World Bank

Several constraints limit the ability of smallholder farmers in low and middle income countries (LMICs) to reach their production potential. One such constraint is access to formal finance; smallholders and other agricultural value chain participants frequently cannot access credit necessary to invest in new crops or technologies and deal with risks and shocks and/or savings products necessary to safely carry wealth from harvest to planting. A combination of new technologies, markets, and government priorities in several Southeast Asian countries suggest that new opportunities are emerging to overcome these long-standing challenges to expanding agricultural finance.

Yet new technology will neither fully eliminate barriers to increased production nor improve resilience against shocks if farmers lack markets for additional output or if financial providers lack sufficient information to assess potential clients, supervise loans, and address risks. As such, incorporating digital technologies into existing models of whole-of-value chain agricultural finance, or agricultural value chain finance (AVCF), is a potentially attractive approach to increase smallholder farmer returns, financial viability, and resilience and improve livelihoods.

 AVCF blends relational contracting with more formal contracting observed in modern value chains. A standard AVCF scheme allows a formal lender (e.g. a bank) to lend to a single enterprise (e.g. a processor), which then buys crops from individual farmers. The relationship between the enterprise and farmers acts as a substitute for more formal collateral provided by the farmers. The enterprise can more effectively monitor and screen farmers while providing the individualized loans that banks find too costly to make, and the bank retains the ability to make a formal loan to an enterprise under standard terms and conditions.

In the IFS4Ag project, we have studied the necessary conditions for AVCF to work and how government policy and action in three countries—Indonesia, Myanmar, and Viet Nam—affects the potential of AVCF to help alleviate credit and liquidity constraints among farmers, thus limiting their potential. Here, we describe the level and method of government involvement in credit markets in the three countries, examining how this involvement may affect the quantity and quality of smallholder credit. We conclude with some simple recommendations to improve the climate for AVCF.

Credit markets, not just agricultural credit markets, tend to be regulated by governments. Governments typically play the role of ensuring that financial institutions carefully track deposits, charge the interest on loans that they state beforehand, and maintain reserves so that they continue to be solvent. They also regulate entry into financial markets. Governments do not just regulate credit markets; in fact, in all three countries studied in the IFS4Ag project, many or all of the largest banks are government-owned. State-owned enterprises also play an important role in each economy.

Since agricultural credit markets are even thinner than credit markets in general, governments often use further regulations or interventions to attempt to increase the agricultural credit supply. These interventions can be categorized as the establishment of agricultural banks and interest rate regulations. Collateral regulations can also play an important role in helping or hindering AVCF.

Agricultural Banks

One way several countries have intervened in rural credit markets is by establishing an agricultural bank, with branches in rural areas to lower the transaction costs of serving farmers. In fact, each of the countries in our study has or had an agricultural bank. In Myanmar, the Myanmar Agricultural Development Bank and Myanmar Economic Bank have combined to play that role in the past. In Viet Nam, the agricultural bank is the Viet Nam Bank of Agriculture and Rural Development (VBARD). In Indonesia, there is not currently an agricultural bank, but Bank Rakyat Indonesia (BRI) was set up as an agricultural bank.

While agricultural bank branches reduce transaction costs to establishing bank accounts or obtaining credit, they have several potential drawbacks.

• Agricultural banks are often the only bank in a rural area. In the absence of other regulations, theoretically a credit monopoly will decrease credit supply and increase equilibrium interest rates. As a result, these banks may not offer credit terms much better than the informal money lenders often present in rural areas.
• ·Similarly, agricultural banks need not offer market-level interest rates on savings, therefore reducing incentives for rural residents to establish bank accounts, particularly given the spatial dispersion of villages.
• Finally, if, and when agricultural banks are privatized, they maintain that monopoly position.

So although agricultural banks are a useful way to improve credit access in rural areas, they may not be a panacea for agricultural credit.

Interest Rate Regulations

All three countries in the IFS4Ag study have policies affecting interest rates in ways that affect agricultural credit markets.

• In Myanmar, all loan interest rates by commercial banks are capped at 13 percent when collateralized and 16 percent when not for loans of up to MMK 10 million ($7610). Microfinance institutions can lend at 28 percent. Commercial banks largely find these rates too low to make profitable loans, so most agricultural lending is by MFIs or cooperatives.
• In Viet Nam, VBARD and the Viet Nam Social Bank for the Poor (VSBP) are both mandated to make agricultural loans at below market interest rates; VBARD charges 1 percent per month and VBSP 0.7 percent per month, significantly lower than the non-state-owned commercial banks. In fact, according to the 2018 VHLSS survey, 65 percent of all loans to the poor are made by VSBP and another 15 percent by VBARD.
• In Indonesia, the government makes agricultural credit more affordable through subsidies to banks on Kredit Usaya Rakyat (KUR) loans. KUR loans are subsidized by the government and borrowers are charged an interest rate below the market rate (6 percent). The government then pays the difference to the bank. The structure of KUR loans makes them less market distortionary than interest rate ceilings for agricultural loans because banks continue to receive the market interest rate. However, KUR loans are not targeted to agriculture or agricultural businesses, and the majority of KUR loans go to non-agricultural businesses.

Collateral

Restrictions on collateral remain a challenge for agricultural lending in all three countries. There are several good reasons for this:

• Land Policy: In Myanmar and Viet Nam, all land is owned by the government, and farmers therefore only have land use certificates that can be used as collateral. However, not all households have land use certificates for the land they use, making it impossible to use as collateral.
• Policy Confusion: Bank officials are often confused about regulations around collateral. In Myanmar, it was found that  banks misunderstood regulations and thought they could not loan more than MMK 1.5 million ($1141) to farmers.
• Poor Credit Scoring: In Indonesia and Viet Nam, banks are often risk averse in their lending, in part because they lack the ability to assess potential creditors. As a result, lending without collateral is limited, and banks sometimes even require collateral for loans that are not required by policy.

Financial institutions may face more than just difficulty assessing credit risk of individual borrowers; they may just be too unfamiliar with agriculture to feel comfortable lending to agricultural enterprises. This problem appeared acute in Myanmar even prior to the coup, as banks and other lending institutions lacked capacity to assess agricultural developments or enterprises in general. Similarly, in Viet Nam where VBARD and VBSP dominate lending and branches throughout the country, other banks likely lack much capacity to assess agricultural lending or even agribusiness lending.

Other Interventions

Indonesia in particular has an interesting model used for investing in rural areas. Profitable corporations are required to pay a small percentage of profits into corporate social responsibility funds. Some of these funds are directed toward industries that are important for agriculture—for example, rice milling. In the second phase of IFS4Ag, we are working with a group of CSRs to understand whether additional lending through the CSR can lead to increased local supply.

To foster AVCF development, some policy rules of thumb could be considered by the governments of countries studied here and beyond.

• Agricultural loans, by nature, have different requirements than non-agricultural loans. Revenues tend to be lumpy, occurring only at specific times; liquidity requirements are typically short term (weeks or months) rather than long term, except for tree crops; and weather plays a different role in determining risk. Policies can hinder agricultural lending if they require consistent payments or unsuitable loan terms (too short or too long relative to crop and cash flow cycles), or if they inappropriately price risk.
• It is important to clarify collateral requirements for agricultural lending; if loan officers are confused about requirements, they may hinder borrowers from obtaining credit. Moreover, technology should make it possible to develop improved credit scoring and new types of collateral; governments should encourage this development.
• ICTs can be useful tools in catalyzing agricultural growth, but regulations such as caps on mobile money transfers can hinder their use in agriculture. Ensuring the appropriate use of technology to enhance financial options for farmers should be an important goal of regulators in all three countries. Indonesia has started this process, as the Financial Services Authority (Otoritas Jasa Keuangan) has been cautiously approving new financial products that are already helping some farmers find new markets and finance options. In Viet Nam, the State Bank of Viet Nam should consider how to allow current mobile money options to enhance financial inclusion in ways that facilitate agricultural lending.

This work was undertaken as part of, and funded by, the CGIAR Research Program on Policies, Institutions, and Markets (PIM) led by the International Food Policy Research Institute (IFPRI). PIM is in turn supported by these donors. This blog has not gone through IFPRI’s standard peer-review procedure. The opinions expressed here belong to the author, and do not necessarily reflect those of PIM, IFPRI, or CGIAR.

By Sara Gustafson

This post originally appeared on FoodSecurityPortal.org

 Photo credit: ILRI

Increasing urbanization plays a major role in shifting patterns of food supply and demand and thus in transforming food systems. These transformations carry significant implications for the livelihoods of rural populations, presenting both challenges and opportunities. A new paper published in Food Security examines some of these impacts in Africa south of the Sahara (SSA) and South Asia, as well as the enabling environments needed to help rural communities benefit from the changes.

Both SSA and South Asia are expected to experience rapid urban population growth over the next three decades, according to the study. The urban population of SSA is forecast to reach 840 million in 2050, while South Asia is forecast to see its urban population grow to 1.2 billion in the same timeframe. In both regions, while most of this growth is expected to occur in large cities, peri-urban areas (i.e., small and medium-sized cities and neighborhoods on the outskirts of large city centers) are also on the rise. This distinction is important, the study emphasizes, because smaller urban areas are tied to rural economies in different ways than large cities. They often depend more heavily on the agricultural sector, for example, and be more closely tied to local food value chains.

The paper identifies four main channels through which urbanization can impact rural livelihoods. As stated above, the extent to which these channels are in play varies depending on the size and geographic location of a particular urban area.

• Overall growth in urban food demand. Overall demand for food could rise as much as 2.5 times and 1.7 times its current levels in SSA and South Asia, respectively, by 2050. In both regions, urban food demand is expected to grow by two to four times more than rural food demand between now and 2050.
• Urban population’s purchasing power and food preferences. On average, urban households are better able to afford food than rural households. While urban populations in much of SSA struggle more with poverty and income inequality than their urban peers in South Asia, in general, their purchasing power and subsequent food security tend to be higher than rural populations. With this burgeoning urban demand and increased purchasing power will come shifts in consumer preferences. This includes shifts toward greater consumption of meat, dairy, vegetables and fruits, and processed foods – all higher value products that can increase incomes for rural producers.
• Complexity of food value chains and shifts in market linkages. In addition to opening the door to the production of higher-value crops, growing demand for more diverse foods and more processed foods provides opportunities for rural and peri-urban populations to diversify their incomes by engaging in more formal agricultural food value chains as processors and traders as well as producers. Employment in these off-farm sectors is increasing faster than on-farm employment in SSA. In addition, the paper highlights that households more closely linked to urban markets often receive greater returns on their products due to having lower transaction costs and better access to and information about these growing markets. However, formal value chains often benefit larger producers more than smallholders, potentially pushing smaller producers out of profitable sectors and increasing poverty in rural areas.
• Direct and indirect land use changes. As urban populations grow, agricultural land surrounding cities is converted to living space. This expansion of urban land impacts food production and the livelihoods of rural producers. In South Asia, between 1992 and 2015, 75 percent of urban expansion impacted surrounding cropland; this number was less than 40 percent in SSA. The paper projects that between 2000 and 2030, Asia as a whole will lose about 3 percent of its agricultural land to urban expansion, leading to a 6 percent loss in food production. In SSA, a similar 3 percent reduction in cropland will lead to a 9 percent reduction in food production. In addition to directly impacting agricultural production, these shifts in land use will also result in more rural people seeking off-farm employment.

The paper also identifies the various enabling factors – social, physical, geographic, economic, and institutional conditions – that help determine whether rural populations will be able to reap the opportunities and avoid the dangers presented by the foregoing channels. These include migration and remittance flows, communication and transport infrastructure, urbanization patterns (growth of small cities and peri-urban areas instead of large cities), trade policies and financial incentives, and stable government services.

Ensuring the proper combination of enabling factors to help rural populations, particularly smallholders, take advantage of the opportunities presented by urbanization will require a multi-sectoral approach on both the local and the global scale. Globally, this means focusing on establishing and upholding fair trade agreements and increasing investments in capacity building in developing countries. At the national level, policymakers should work to integrate food and agriculture policies and invest in improving communication and transportation infrastructure linking rural and urban areas. Local governments should focus on ensuring that government services are accessible and inclusive, particularly for smallholders, and on increasing rural populations’ access to markets and agricultural inputs.

By Sara Gustafson

 Photo credit: Malcolm Dickson

The CGIAR COVID-19 Hub has released updated policy notes regarding the impact of the COVID-19 pandemic on global and regional food systems. This latest series of updates covers several FSP priority countries, including Ethiopia, Nigeria, Malawi, and Bangladesh.

In Ethiopia, the pandemic has resulted in declines in overall GDP and in GDP of the agrifood sector.  The majority of these declines stemmed from reductions in trade and remittances. Total GDP fell by between 6.1 and 7.7 percent, with the agrifood sector accounting for 14.9 percent of those total losses. Ethiopia’s poor population has risen by 8.5 percentage points since the onset of the pandemic, which severely restricted the livelihoods and incomes of poor urban households in particular. Despite these declines, overall the country’s food value chains have proven to be resilient to the shock presented by the pandemic. The report also highlighted that earlier investments in irrigation have provided important access to water for vegetable production and household sanitation.

COVID-19 posed significant challenges to agricultural production in Malawi, exacerbating existing climate stresses. Access to agricultural inputs and output supply chains has been disrupted; at the same time, transport costs have risen, and market prices have faced volatility. All of these factors have reduced farmers’ incomes, as well as the GDP of Malawi’s agrifood system. The pandemic has had an even greater impact on urban households, which have experienced some of the highest income losses. Research into the impact of the pandemic on Malawi’s food value chains remains ongoing.

Nigeria has also faced doubled challenges in the form of the COVID-19 pandemic and a weakened economy. During the course of the pandemic, both total GDP and agrifood system GDP declined as a result of lost income and disrupted supply chains. The agrifood system accounted for 14.7 percent of Nigeria’s national GDP loss. Household purchasing power has also declined as incomes have been impacted by economic recession and high inflation rates.

CGIAR researchers continue to work with the Nigerian government to assess the impacts of the pandemic and associated policy responses and to identify priority policies to aid in national and household-level economic recovery.

In Bangladesh, the economic fallout from the COVID-19 pandemic has been severe. As in other countries, reductions in income and disruptions to supply chains have led to declines in total GDP and agrifood system GDP. The losses in the agrifood system GDP account for around 41 percent of national GDP losses. Rice prices within Bangladesh increased 35 percent during the pandemic; in addition, the 2021 harvest period and replanting period have been hampered by floods, which could further drive up prices. The dairy, poultry sectors, and aquaculture sectors were all hit with substantial losses due to lockdown measures, with producers facing significant loss of income. Poverty in Bangladesh reached 30 percent of the total population – an estimated 7 percentage points higher than would have been estimated in the absence of COVID-19. Government policies, including subsidies, have attempted to bolster the agrifood sector to support recovery and strengthen value chains.

By Sara Gustafson

This blog is originally posted in the ssa.foodsecurityportal.org. 

 Photo credit: World Bank

As the world continues to grapple with the ongoing presence of COVID-19, it has become clear that the pandemic’s impacts extend far beyond human health. Economic growth, markets and supply chains, poverty, and food security have all experienced ripple effects from the pandemic itself and the measures taken to stop the spread of the deadly virus. In Africa, the outbreak of COVID-19 coincided with the signing of the African Continental Free Trade Area (AfCFTA), leading to concerns about the potential negative impacts on free trade targets in the region.

A forthcoming book chapter, “The COVID-19 Pandemic and African Continental Free Trade Area (AfCFTA): Exploring Potential Impacts and Developmental Implications” (published in Global Market and Global Trade [Working Title]), examines these impacts and discusses how the AfCFTA and similar trade agreements could be used to mitigate the negative economic fallout of COVID-19 and similar shocks in the future.

The AfCFTA was launched by the African Union (AU) to address persistent low levels of intra-regional trade on the continent. In 2014, trade among African countries accounted for 16% of the continent’s overall trade activity, despite the existence of numerous bilateral intra-African trade agreements. Research has linked intra-regional trade to reduced poverty, improved food security, and strengthened economic growth, and so improving these low numbers could have significant effects on important development outcomes in Africa.

The AfCFTA’s target is to increase boost intra-regional trade by 60% by 2022. The agreement aims to achieve this ambitious goal by creating a single African continental market for goods and services that allows free movement of people (for business purposes) and investments. In addition to expected reductions in poverty and food insecurity, a secondary hoped-for outcome of the agreement is the improvement of Africa’s trading position in the global market. Some of the AfCFTA’s most important stated objectives include: the elimination of tariffs and non-tariff barriers to trade; cooperation on investments, intellectual property rights, and customs matters; and the establishment of a mechanism to settle disputes among member states.

To date, 34 of the 55 AU member states have signed and ratified the agreement, making the AfCFTA the largest free trade area in the world. The agreement has the potential to lift 30 million Africans out of poverty and bring approximately USD 16.1 billion in welfare gains to the region.

The chapter reports that in the first quarter of 2020, before the outbreak of COVID-19 in Africa, there were signs that intra-regional trade was beginning to intensify as the framework of the AfCFTA took shape. However, the pandemic has already had some direct effects on the agreement itself and on trade activity within the region. COVID-19-related travel bans and border closures postponed negotiations on several key aspects of the AfCFTA, causing a six-month delay in the implementation of the agreement.

As in many other places around the world, COVID-19 and the associated policy measures adopted to help stop the spread of the virus disrupted supply chains in Africa. Inputs for agriculture, manufacturing, and other industrial uses became more difficult to import, causing production delays and shortages. At the same time, production was further slowed as many employers like factories and mines closed as part of social distancing and lockdown efforts.

Travel bans and lockdown measures around the world also led to declining demand for oil, both globally and within Africa. This has had a significant detrimental impact on oil-producing countries in the region (e.g., Angola, Nigeria, and the Democratic Republic of the Congo).

Demand has slowed for African non-oil goods as well. Overall consumption throughout the region slowed in 2020 as a result of the pandemic. The chapter reports a 17.3% decline in African household expenditures from the previous year. Together, declining production and slowing demand for both oil and non-oil exports are expected to impact trade, employment, incomes, and well-being in the region for at least the next two years.

Despite these negative impacts, however, the chapter also highlights how the COVID-19 pandemic has presented the opportunity for AfCFTA and similar free trade agreements to capitalize on new products, markets, and trade frameworks. These could ultimately help mitigate the potential longer term negative impacts of the pandemic, stimulate future economic growth, and increase resilience against future shocks.

For example, the chapter argues that travel restrictions could encourage more local and regional production and reduce dependence on imports from overseas. By supporting African countries in ramping up production of goods that are currently often imported from Europe or Asia, AfCFTA can help create employment on the continent while also guarding against future supply chain disruptions.

Similarly, intra-African trade can play an important role in reducing food insecurity – both chronic and that induced by COVID-19 – in the region. Many African countries are net food exporters; however, the region also has many areas suffering from food deficits. By improving regional transportation networks, the AfCFTA can help strengthen regional food value chains. With stronger value chains, food-exporting countries can more easily export food within the region to areas in need.

The AfCFTA was also launched at the right time to leverage technological advances and improvements in connectivity across the region, the chapter argues. While other sectors have suffered from pandemic-induced supply chain disruptions, the telecommunications sector in Africa has experienced some growth. By focusing on new and emerging sectors and products, the AfCFTA could help generate employment and income opportunities that are more protected from economic shocks.

While COVID-19 has presented, and continues to present, significant challenges for populations and economies throughout Africa and the rest of the world, it also presents opportunities. The AfCFTA presents one channel through which policymakers and other value chain actors can strengthen the region’s ties, break down barriers hampering growth, and invest in vital institutions and infrastructure. By doing so, trade in the region will become more sustainable and resilient.