Famine Early Warning System NETwork -

MONTHLY REPORT May 28, 2001

SUMMARY

· Maize prices continue to be low as the 2001/02 marketing season opens. Generally, there is a good supply of maize grain on the market comprised of both old stocks and newly harvested grain. Maize grain prices range from US$82 to US$115, slightly lower than at the end of April (US$93/MT-US$115/MT).

· A comprehensive needs assessment to establish the extent of crop loss due to adverse weather during the past growing season has not yet started. Analysis of the 2000/01 crop forecast data is still underway. A post-harvest survey will follow.

· The annual rate of inflation dropped significantly, from 28.8 percent in March to 24.8 percent in April, marking a 4 percent fall. This drop has been partly attributed to decreasing maize grain prices. The Kwacha depreciated against the U.S. dollar by about 7 percent from mid-April to mid-May.

1. MARKET SITUATION

New grain has started entering the market as the 2001/02 marketing season opened May 1. Seasonal foods such as pumpkins and sweet potatoes are in very high supply and are therefore reducing pressure on grain demand. Generally, both old and new maize stocks are adequately available on the market. In line with the seasonal price pattern, maize grain prices at the start of the new marketing season are relatively low. As of the end of April, most areas were still reporting prices much below their five-year average. Among 43 of the 72 districts reporting prices, () reported the highest price.

Based on Food Reserve Agency (FRA) price data, maize grain prices range between US$82/MT and US$115/MT as of mid-May. Maize meal prices, on the other hand, have generally remained stable since January.

The 2000/01 marketing/consumption year ended on April 30 with good supplies of grain on the market, as indicated by relatively low grain and meal prices. Other seasonal foods, such as pumpkins and sweet potatoes, are adequately available on the market. The availability of these foods, although not perfect substitutes for maize, generally reduces demand for maize.

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A visit to the main public market in Lusaka in mid-May confirmed the very high supply of sweet potatoes coming in from (Central Province). Sweet potatoes from Northwestern Province (another major supplier) have not yet started reaching the Lusaka market, as supplies are not expected until June, according to traders.

Discussions with small-scale maize traders at the market revealed that they have maize stocks from both the present and previous season. They are buying newly harvested grain from farmers at K13,000 (US$3.94) per 50 kg and selling at K18,000 (US$5.5) per 50 kg (this price applies to both old and new stock). These were the same prices reported in March. When the bags are broken into smaller quantities, they make more profit than the sale of large quantities; traders can therefore afford to bring down the price without too much loss of profit. For the smaller quantities, however, the price fell by 8 percent from mid-March (K6,500 per 15 kg) to mid-May (K6,000 per 15 kg). The traders further complained of low demand for the grain, but were hopeful that this would pick up in the next few months. They indicated that there is much less maize available this season compared with previous seasons. Those farmers currently selling were doing so due to need for immediate cash. Hammer mill operators equally complained of very low business because other foods are still available and maize meal is still relatively cheap; at the time of the visit, there was no activity at the mills. All the maize at the market was being purchased from within Lusaka. According to the traders, demand for the grain by the major millers was currently low as they still had stocks on hand.

Figure 1. Nominal Maize Grain Prices in Selected Rural Districts: May 2000 - April 2001 14,000

Luangwa Mkushi 12,000 Mumbwa Petauke Ndola Rural Mazabuka 10,000

8,000

6,000

Kwacha per 15 kg 4,000

2,000

- May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr 2000 2001 FEWS NET/Zambia Source: Central Statistics Office

Luangwa reported the highest average monthly price among the 43 price reporting districts, largely because it is a low-producing area, while Choma and Serenje reported the lowest prices (less than K5,000/15 kg). Looking at the nominal maize grain price trends for selected rural areas over the past year (Figure 1), prices generally took a steady upward trend in October in four of the districts, while Petauke and Mumbwa reported relatively stable prices up to January. For most of the districts, monthly average maize prices peaked in March, in line with the seasonal price pattern. Among the six districts, only

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FEWS NET Zambia Monthly Report – May 28, 2001

Luangwa and Mumbwa prices rose sharply shortly before the harvest period, especially from December to January. Petauke registered the lowest price for the last three months followed by Mazabuka, and not surprisingly, since both are high maize-producing areas. Although maize prices were relatively low throughout the 2000/01 season, the trend shows that they did follow the usual pattern.

Figure 2 shows the maize price comparison for selected areas in real terms with respect to a six-year average (1995-2000). Generally, all areas reported prices much below average for April. During the just- ended 2000/01 marketing/consumption year, maize prices were mostly much below average, to the benefit of consumers who buy their maize.

Figure 2. Real Maize Grain Price Comparison for Selected Districts, April 2001

2,500

2,000

1,500

1,000 Kwacha per 15 kg 500

0 Lusaka Mumbwa Ndola Rural Petauke Mazabuka Luangwa Urban April 2001 1,185 1,377 869 1,072 917 1,780 April Ave 1,871 1,949 1,685 1,991 1,946 2,196

FEWS NET/Zambia Source: Central Statistics Office

Information from the Food Reserve Agency established that into-mill maize prices (prices at which millers purchase grain) were in the range of US$82/MT to US$110/MT as of mid-May. This is slightly lower than that reported at the end of April (US$93/MT-US$115/MT). At the Agricultural Commodity Exchange in Lusaka, the bid price ranged between US$110/MT and US$115/MT in mid-May.

Based on Food Reserve Agency reports, maize meal prices have remained stable since January, with marginal reductions in the second week of May. The prices are in the range of K16,000/25 kg to K19,000/25 kg for breakfast meal and K11,000/25 kg to K14,800/25 kg for less refined roller meal.

Although maize prices currently are still low, they are expected to pick up in the next few months. This is based on the expectation that the current harvest will be significantly lower than that of the previous season.

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FEWS NET Zambia Monthly Report – May 28, 2001

2. RESPONSE TO VULNERABLE POPULATIONS

The needs assessment proposed by the VAM group in the areas affected by adverse weather has not yet started. Although the crop production figures for the 2000/01 season are not yet available from MAFF, indications are that there will be a significant drop in the maize harvest compared with 1999/2000.

The 2000/2001 production year closed on April 30 with a number of areas reporting much above-normal seasonal rainfall. These were areas that reported waterlogging/flooding during the growing season. A needs assessment will need to be done in selected areas to establish the extent of crop and food loss resulting from the adverse weather conditions. Currently, the Ministry of Agriculture, Food and Fisheries is analyzing crop production data. So far, most factors point to a significantly reduced maize output compared with the previous season due to the effects of either excessive or deficit rainfall.

There have been reports of floods in the Chanyanya area of (Lusaka Province), following opening of the floodgates of another hydro power station (Itezhi Itezhi Dam) by the power company. The Government has sent blankets, tents, and maize meal to help families displaced by the floods.

3. MACROECONOMIC INDICATORS

The rate of inflation dropped significantly from 28.8 percent reported in March to 24.8 percent in April, a 4 percent reduction. The reduction was attributed partly to the seasonal reduction in maize grain prices. The inflation rate has been falling since January, but at a much slower rate than compared with the April drop.

The Kwacha depreciated against the U.S. dollar by 7 percent from mid-April to mid-May, making the local costs of imported goods and services more expensive.

3.1. Inflation Rate

The inflation rate dropped significantly in April compared with the previous month. The annual rate fell from 28.8 percent at the end of March to 24.8 percent at the end of April, a remarkable 4 percent drop. This drop has been attributed to falling maize prices as well as the short-termappreciation of the local currency in April, which resulted in notable price reductions in some imported commodities, such as wheat, petrol, and raw materials for the manufacture of local products.

During April, general price reductions were observed in the cost of food items and transport (Central Statistics Office data). This was reflected in the monthly rate of inflation, which dropped by 2.6 percent from 2 percent in March to 0.6 percent in April.

Since January, the annual rate of inflation has been on a downward trend, a positive development toward meeting the targeted 17.5 percent rate of inflation at the end of the year. Consumers have benefited from the relatively low price of maize, the main staple food, during a good part of the 2000/01 consumption year and this has continued into the first part of the 2001/2002 year, which has just started in May.

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FEWS NET Zambia Monthly Report – May 28, 2001

3.2. Exchange Rate

The Kwacha lost strength against the U.S. dollar over the past few weeks. After appreciating to the level of US$1: K3,090 in mid-April, the Kwacha notably depreciated by 7 percent to US$1: K3,296 in mid- May. Barclays Bank attributed the loss in strength of the local currency to increased demand for foreign exchange. An increase in the supply of foreign exchange is expected toward month end as companies sell off their foreign exchange to meet local month end obligations.

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