Finance

WAEMU: Food underproduction drives inflation again

WAEMU: Food underproduction drives inflation again
Wednesday, 22 June 2022 07:37

Earlier this month, the BCEAO raised its key rates in a bid to curb inflation. However, its recent economic indicators suggest that monetary solutions will not be enough to achieve the targeted goal. Production needs to be revived, food production especially. 

In West Africa, inflation is mainly driven by food underproduction, the regional central bank (BCEAO) confirmed in a report published Monday (June 20).  Nevertheless, the institution will mainly take monetary solutions, notably increasing its policy rate, to reduce money supply. 

According to the report, in the quarter ending in March 2022, inflation reached 6.4% in the WAEMU region. This is more than twice the convergence rate (+/-1% on a reference value of 2%) approved by member countries.

The food component alone rose by 5.2% but some products recorded no quarter-to-quarter change in prices. The price of agricultural commodities increased all thanks to higher prices in global markets. The products whose prices rose the most are cocoa, cashew nut, palm oil, and rubber but, as those segments are controlled by multinationals, the rising prices have no noticeable impact on the revenues of local producers. 

During the 2021/2022 season that ended in late March,  food crop production declined by 8%. A total of 66.3 tons of cereals, tubers, and other crops were harvested in the region, according to official statistics reported by BCEAO. This is down by 8.1% compared to the 2020/2021 season (that season, production was already down by 6.7% compared to the previous season).  

The BCEAO's solution to reduce the amount of money circulating in the region is normal because, in economic theories, lowering key rates is a solution to reduce inflation. Also, underproduction coupled with excessive demand can widen the gap between exports and imports, therefore increasing the region’s trade deficit.  

Yet, the urgent action to take should be for the central bank to finance food production as it did to support its member states during the coronavirus pandemic. In the subregion, only 3.6% of bank credits go to the fisheries, livestock, and agriculture sectors. Meanwhile, other sectors  (such as the tertiary sector, which includes consumption and services) that receive the largest portion of bank credit have stable prices.

The central bank’s indicators point that the institution should adopt a case-by-case approach to control inflation in the region. During the quarter reviewed, Burkina Faso recorded the highest inflation (10.3%), followed by Mali and Togo (8.2%). In those countries, the situation is complex given that wage increase is not a sustainable solution for them.  Wage increase would increase the fiscal deficit and shake businesses (by increasing their wage bills). It will also cause inflation to rise again. 

 Commercial banks, which seem to have no other choice from a prudential standpoint, continue to inject more money into central governments. For countries like Burkina Faso, Mali, Niger, and Benin (recently), the situation is slowly but surely becoming more complicated. Microeconomic difficulties are exacerbated by security challenges that add to the already existing pressure on governments.


Idriss Linge

On the same topic
COMESA launches local-currency digital payment platform DRPP DRPP enables cross-border trade without using U.S. dollars Aims to cut costs, boost SME...
• Faso Films Fund aims to finance local and diaspora cinema projects• Initiative managed by the Burkinabè Film and Audiovisual Agency (ABCA)• Program...
• Companies with annual revenue above CFA5 billion ($8.8 million) will be required to build headquarters in Burkina Faso.• Firms will have six months to...
• Côte d’Ivoire reduced its budget deficit from 6.8% of GDP in 2022 to 4% in 2024, according to the World Bank.• The government targets a deficit of 3% of...

Most Read
01

Senegal’s attempt to diversify its fuel supply by turning to Nigerian crude is bumping up against ha...

Senegal Turns on Nigerian Crude to Diversify its Fuel Supply — But Challenges Loom Ahead
02

• UAC of Nigeria acquired CHI Limited, known for Chivita juices and Hollandia dairy, from Coca-Cola ...

UAC of Nigeria Takes Control of CHI Limited, Former Coca-Cola Subsidiary
03

• Nestlé, NGOs urge against delay, propose grace period instead• EU cites technical hurdles, trading...

EU Weighs Delay to 2025 Anti-Deforestation Law Amid Industry Calls to Stay on Track
04

• AfDB chief Sidi Ould Tah met BOAD president Serge Ekué in Abidjan on Aug. 30.• Talks focused on jo...

AfDB, BOAD join forces to expand financing for West Africa projects
05

Financial professionals gathered in Dakar on September 25 for the Structured Finance Africa Forum (S...

Rating Agency Chief: West Africa Securitization Could Hit 20 Deals a Year
Enter your email to receive our newsletter

Ecofin Agency provides daily coverage of nine key African economic sectors: public management, finance, telecoms, agribusiness, mining, energy, transport, communication, and education.
It also designs and manages specialized media, both online and print, for African institutions and publishers.

SALES & ADVERTISING

regie@agenceecofin.com 
Tél: +41 22 301 96 11 
Mob: +41 78 699 13 72


EDITORIAL
redaction@agenceecofin.com

More information
Team
Publisher

ECOFIN AGENCY

Mediamania Sarl
Rue du Léman, 6
1201 Geneva
Switzerland

 

Ecofin Agency is a sector-focused economic news agency, founded in December 2010. Its web platform was launched in June 2011. ©Mediamania.

 
 

Please publish modules in offcanvas position.