After a big spike in maize prices last year -- Grain SA hopes that a new information mechanism will make the market more transparent.
After a big spike in maize prices last year – a major determinant of food inflation for the poor – Grain SA hopes that a soon-to-be-implemented information mechanism will make the market more transparent and stable in future.
Maize prices rose sharply in 2011 because of a double whammy: the rand fell steeply and, surprisingly, a successful export drive meant that, although a surplus had been produced, imports of maize were still needed.
Jannie de Villiers, chief executive of Grain SA, which represents commercial grain farmers, said that last year’s problems were caused partly by a lack of crucial information.
Although the quantity of locally held stocks was published, the volume of ongoing export sales by maize traders was not known.
When traders managed to secure export contracts for far more maize than they initially expected to sell – primarily because of droughts in Mexico and the United States – local buyers were wrong-footed and had to import the grain, sending prices steeply upwards.
De Villiers – whose job is to make the market work better for farmers, processors and consumers – said that, following last year’s difficulties, Grain SA asked the government whether the Marketing of Agricultural Products Act could be used to compel traders to disclose their export contracts so that local buyers knew on a day-to-day basis how much maize was available on the local market.
Traders subsequently agreed to provide the information voluntarily and the new system will start in July.
De Villiers said that, if the voluntary system did not work, Grain SA would again ask the government to compel traders to disclose what export contracts they had signed on a daily basis.
The disclosure of the information does not mean that maize prices will be lower – the local price is largely determined by international prices and the level of the rand.
The single-channel marketing system – operated by the former Maize Board that allowed the government to control prices and exports – was abolished in 1997.
De Villiers said maize production and surpluses had been increasing in recent years and that this pattern was likely to continue because of improved cultivars and higher yields from genetically modified seeds.
Chris Venter, chief executive of Afgri, South Africa’s largest agribusiness company, said the local maize crop would reach 20-million tonnes in five to 10 years’ time, primarily owing to more productive cultivars. This was more than double the quantity required for domestic consumption and considerably more than double the quantity that used to be produced in the past.
But ongoing surpluses do not necessarily mean lower prices. This is not only because of the success of the export effort, but also because any potential rise in production may be limited by the development of the biofuels industry.
De Villiers said that in past years, when maize prices were low, Grain SA would sometimes advise farmers to plant less. But since he took over as chief executive a year ago, there had been a change in approach. He said farmers did not want to be told to plant less maize and he preferred to develop the market to accommodate increased production.
Last year, slightly more than a million tonnes of white maize was exported to Mexico for the first time. Venezuela was also re-established as a market for white maize and markets for yellow maize were established in Taiwan and Korea.
Developing the market
And the development of the export market is still growing. Minister of Agriculture Tina Joemat-Pettersson, who helped to re-establish the Venezuela market, is now working on developing the market in China.
De Villiers said it was likely that South Africa would become a preferred supplier of maize to the Asian giant by the end of the year. If China took to South African maize, huge exports could be in the offing.
Local maize is often of a higher quality than maize from the US, for example, particularly because it is sun-dried and harder.
Last year it was assumed that only one million tonnes of maize could be exported because of rail capacity constraints – but 2.5-million tonnes were exported, mainly through Durban’s port, where trucks queued for days in the city’s streets, incurring hefty fines for transport companies.
De Villiers said the most sustainable solution for Grain SA’s members and for consumers was “profitable production of maize at exported parity prices”.
Satisfy local demand
Maize inflation, and therefore food inflation, is always likely to spike in South Africa when maize commodity prices move from export- to import-parity levels.
Export-price parity normally occurs when farmers produce more than enough for domestic requirements and for export. Import-price parity happens when imports are needed to satisfy local demand.
De Villiers said the ending of the single-channel marketing system, as well as the absence of subsidies for commercial farmers, meant that the only way for South African producers to stay competitive was for them to consolidate.
This was reflected in the striking statistic that eight years ago 30% of commercial farmers accounted for 80% of maize production, whereas today 17% of them accounted for the same quantity.
Now, he said, further efficiencies must be sought in infrastructure and elsewhere, while also encouraging previously disadvantaged farmers.
A fly in the generally positive ointment for the grain industry is South Africa’s steeply declining production of wheat.
This year, according to estimated planting intentions, production will decline to levels it was last at in the 1930s and the country will, for the first time, be importing more wheat than it grows locally. This is because of the crop’s poor viability – many wheat farmers in the Western Cape, for instance, are switching to planting rape for canola oil production because wheat farming is no longer profitable, given the current zero-import tariff.
De Villiers said the government had to decide what level of self-sufficiency in wheat was required to counter the threat of drought in producing countries and other negative events affecting the market.
Of the five food items most widely consumed by poor people maize porridge, brown bread, sugar, tea and full-cream milk – bread costs about two-thirds more than maize.
Biofuels production puts squeeze on food crops
South Africa’s biofuels programme could restrict the increase in maize production, with land being diverted to soya and sorghum.
Draft regulations for the mandatory blending of biofuels with petrol or diesel were published in September last year.
Chief executive of Grain SA, Jannie de Villiers, said the organisation had recommended that the government should not subsidise biofuels production from maize because it did not want the maize food price to increase as a result of offtake for biofuels production.
In the United States, 40% of maize production goes into biofuels and as a result the international maize price has become primarily linked to the international crude oil price.
Therefore, the government is likely to subsidise the production of soya for biodiesel and sorghum for bioethanol, but not maize.
Developing black farmers
Subsidisation is a foregone conclusion – there is no biofuels programme in the world that survives without subsidisation.
A recent survey by Grain SA found that the construction of an additional 1.6-million-tonne capacity soya oil pressing plant had commenced, with completion expected by 2014. And, in Bothaville in the Free State, construction of the first licensed bioethanol project in South Africa is scheduled to commence next month at a budgeted cost of about R1.7-billion. Its feedstock will be sorghum.
These plans for processing far outstrip the current production of soya and sorghum seed, so the national production of both will have to be doubled at least, much of it on lands previously used for maize. South Africa currently grows about 700 000 tonnes of the grain a year.
De Villiers is advocating that the sorghum seed production for the bioethanol facility at Bothaville – and others built in future – should be undertaken mainly by developing black farmers.
A programme co-ordinated by Grain SA currently involves mentoring 3600 black grain farmers, mainly in the North West and Free State. The programme pays for the mentoring and instruction from funds from the old grain boards, which have since been invested.
“We are 90% successful in helping farmers to viability, whereas the government’s land reform programmes have so far been largely unsuccessful,” he said.
Employ more people
“The real challenge is to get the communal lands to be more productive in farming and to employ more people.”
De Villiers said that when Grain SA talked to the government about profit it elicited little interest. But the opposite occurred when it talked about jobs.
Higher grain productivity can also be achieved in other African countries, including Zambia, where there is a large community of commercial farmers, and eventually Zimbabwe. South African companies are about to set up silo facilities for the storage of grain in Zambia. Eventually, if rail and border facilities are improved, these countries will be able to export and import grain easily to and from South Africa.
To make South African grain more competitive internationally, rail is a particularly important factor.
“In the 1980s, grain was 85% transported by rail; today it is 23% transported by rail. Road transport is 25% more expensive than rail, which means we are paying 25% extra unnecessarily.
“Also, Maputo is closer than Durban for exports, so we need to upgrade its efficiencies and facilities,” De Villiers said. – Teigue Payne