‘Food prices hike needs income increase’



Bereng Mpaki

A STUDY conducted by the Food and Agriculture Organization of the United Nations (FAO) indicates that vulnerable households in Lesotho need an increase in income to cope with soaring food prices.

Like other southern African countries, Lesotho has been hit hard by the El Niño-induced drought that has triggered a rise in cereal prices in the region.

According to the report, which was published in May 2016 and titled “Impact of food prices increase among the poorest”, the spike in cereal prices had been compounded by the depreciation of the value of the South African rand.

“The current drought induced by El Niño is increasingly affecting countries in southern Africa, especially South Africa, which is the main source of cereal imports for Lesotho,” reads part of the document.

“Wholesale prices for cereals are increasing in South Africa and are likely to be transmitted to Lesotho in the short-term. Second, the current depreciation of the rand, to which Lesotho’s Mmaloti currency is currently pegged vis-à-vis the US dollar, will make imports from other countries more expensive.”

Using data from the household survey carried out to evaluate the impact of the Child Grand Programe (CGP) – an unconditional social cash transfer for poor and vulnerable households as a basis, the study shows that the poorest households would be directly affected by the price hike.

According to its original design, the CGP transfer provided the equivalent of about 20 percent of the monthly consumption expenditures of an eligible household.

“The price increase had very diverse impacts on different socio-economic groups. The direct and first-order impacts of the price shock were borne disproportionately by the poorest and least endowed households,” the report further reads.

“As for the possible policy measures to contrast the impacts of the current price surge we observed that, in order to maintain household utility unchanged, every percentage increase in the price of cereals would need to be matched by a 0.4 percent increase in income.”

It continues: “If increases in total income would have to come only from the exogenous component given by the cash transfer while other sources remain stable, the amount of the cash transfer would have to increase by two percent for every percentage point increase in the price of cereals.”

The report notes that the increase registered thus far, since December 2015, in the retail maize price, was approximately 15 percent at the national level, “which calls for an increase of almost 30 percent in the amount of the cash transfer.”

The study also found that poor households spent around 65 percent of their income on food and 20 percent of this amount on vegetables.

“This confirms the adequacy of complementing cash transfers with home gardening kits. The home production allows families to save on expenditures on vegetables and allocate more cash resources to the purchase of staple food and other commodities.”

To mitigate the impact of the prevailing drought and food prices increases, FAO is supporting the Ministry of Agriculture and Food Security and the Ministry of Social Development to complement the CGP with home gardening and nutrition education.

FAO has so far received funds from the European Union (ECHO – European Commission Humanitarian Aid and Civil Protection Directorate) and the UN Central Emergency Response Fund (CERF).

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