Middle East & Africa

BMI View: This quarter, we believe that the region's key themes will pertain to food security, cocoa production, and competition in Eastern Africa's coffee sector, which we expect to increase in the wake of lower average coffee prices. Food security will remain broadly stable in the region over the short term, although medium-term concerns will drive interest in land acquisitions.

For this quarter's Middle East and Africa regional overview, we highlight in particular food security, cocoa production and competition in Eastern Africa's coffee sector. Below, we focus on five key medium- and long-term themes across the region.

1. No Self-Sufficiency For Middle Eastern Grain Importers

Widening Deficit
Select Countries - Grain Production Balance Out To 2016/17 ('000 tonnes)

BMI View: This quarter, we believe that the region's key themes will pertain to food security, cocoa production, and competition in Eastern Africa's coffee sector, which we expect to increase in the wake of lower average coffee prices. Food security will remain broadly stable in the region over the short term, although medium-term concerns will drive interest in land acquisitions.

For this quarter's Middle East and Africa regional overview, we highlight in particular food security, cocoa production and competition in Eastern Africa's coffee sector. Below, we focus on five key medium- and long-term themes across the region.

1. No Self-Sufficiency For Middle Eastern Grain Importers

Over the long term, we expect the region to remain a large grain importer, with grain production deficits for four of the countries we cover widening over our forecast period. Egypt will remain the largest wheat importer, with its deficit continuously widening out to 2016/17. Algeria, Iran and Saudi Arabia will see their deficit increase only slightly over our forecast period. This will come from strong growth in production (Algeria) or slowing growth in demand (Iran, Saudi Arabia) as consumption per capita reaches more sustainable levels. Only Morocco could see its production balance improve slightly because of saturated wheat demand and very little improvement in GDP per capita over our forecast period. Only Iran and Saudi Arabia are set to have higher import needs for corn and barley, mainly because of both countries' goals to increase self-sufficiency in livestock production.

Widening Deficit
Select Countries - Grain Production Balance Out To 2016/17 ('000 tonnes)

2. Food Security Concerns Will Drive Land Acquisitions

Land procurements around the world will remain a key element of any discussion of food security in the wake of the 2007 spike in grain prices. Land procurement schemes have been in existence for at least a decade, and after the initial spike in 2007, governments and investment funds returned to view agriculture as an investment opportunity after largely deserting the industry for many years. Indeed, food prices showed little movement between 1997 and 2004, with corn prices actually falling in nominal terms over the period. Since then, however, there have been more than 80mn hectares included in agricultural deals, with more than two-thirds of those deals involving land in Africa. Despite the popularity of these deals, they remain politically contentious.

Mainly In Africa
Global - Land Procurement Agreements By Region Since 2000 (% of total area)

3. Latest Concerns Add To Subdued Cocoa Growth Outlook

There are concerns that the 2013/14 cocoa harvest in West Africa (which normally begins in October) will be delayed by several weeks due to dry weather and a large mid-crop. Although we are maintaining our supply forecasts across West Africa for 2013/14, we see downside risks stemming from the large mid-crops harvested in the 2012/13 season. In particular, the Ivoirien mid-crop is estimated at 440,000 tonnes, according to the International Cocoa Organization, one of the largest ever. Some observers suggest that this will delay the setting of pods in time for the start of the 2013/14 harvest in September, thus delaying the harvest. Dry weather in parts of West Africa is expected to affect the crop as well by causing young pods to wilt, which would reduce yields. In the 10 days leading up to July 1, moisture levels were 80% below normal. Even though the current issue regarding bean sizes is likely to dissipate, we continue to foresee longer-term problems regarding the sector. Aside from the well-documented problems regarding labour and aging trees, the most recent development is a dispute between farmers and the Ivoirien government, which is evicting farmers who reside and farm in protected forested areas.

Long-Term Market Tightness
Global - Cocoa Balance & Stocks-To-Use Ratio

4. Food Security To Deteriorate Slightly In South West Africa

In our last overview of food security in South West Africa, we highlighted that conditions would be patchy depending on the country, although overall there is no indication of a crisis despite lower production from most producers. Availability of maize, the key staple crop in the region, is dependent on output prospects in Zambia, the region's largest producer. So far, with harvesting for the 2012/13 crop nearly complete, we are maintaining our forecast for maize production in Zambia to fall slightly to 2.8mn tonnes. This will be largely due to poor rainfall at critical times in the crop formation, particularly in south-west areas. We are maintaining our view that food security in South West Africa will be patchy depending on the country, with some regions receiving adequate rains while other are likely to draw down stocks or reduce consumption. As Angola and Botswana are major maize importers, prices are likely to remain elevated in the coming months.

Banking On Zambia
Select Countries - Corn Production Balance ('000 tonnes)

5. Uganda And Ethiopia To Lead East African Coffee Sector

The East African coffee sector, which has seen either stagnation in recent years (Uganda) or outright declines (Kenya), appears poised for expansion over the long term due to improvements in government support and rising domestic demand. East Africa (including Ethiopia) is one of the world's largest producers of arabica coffee beans, although it will remain well behind Brazil despite annual production of roughly 17mn 60kg bags of coffee. The crops have gone through some difficulty in recent years mainly due to bad weather and poor returns due to previously low prices. This resulted in limited use of fertilisers and exacerbated the weather problems. Over the long term, however, we do not see the sector growing uniformly. Indeed, we see strong growth for Kenya and Tanzania, although they will not challenge Uganda and Ethiopia as the region's largest producers.

Uganda Shows The Way
Select Countries - Coffee Exports ('000 60kg bags)

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This article is tagged to:
Sector: Agribusiness
Geography: Africa, Africa, Vietnam, Africa, Africa, Africa, Africa, Africa, Africa, Africa, Africa
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