Maize crisis looms in SA
South Africa could face a maize shortage soon and might have to import the grain at a time of growing global scarcity.
Wessel Lemmer, an economist at Grain SA, said if maize exports continued at the current rate, it might be necessary to import the grain for both feed and food by the end of April next year.
South Africa produces enough maize to meet its domestic needs, which is excellent for national food security, but it could still find itself with a shortage because the surplus might have been exported to cash in on the growing international demand.
The United States's maize crop has been devastated by the worst drought since 1956 and international demand has led to record prices – 40% higher than this time last year.
The leaders of the G20 group of nations are discouraging practices such as hoarding and export restrictions and it is unlikely that South Africa will try to curb maize exports. Therefore, the country has little way to prevent the situation.
The spot price of R65.65 a bushel (about 25kg) is even higher than the peak of 2008.
Based on maize
The poor in South Africa are already suffering because of rising food prices. The food price monitor released by the National Agricultural Marketing Council in February showed that the food and non-alcoholic beverages index increased by 10% between January 2011 and January 2012.
Every food group has risen in price since last year. Bread and cereals are up by an alarming 26.6% and bean products by more than 20%, followed by fats and oils and animal protein – both by a little under 14%.
"We're talking about consumers of meat too, because red meat and poultry production is based on maize," said Professor Nick Vink, chairperson of the department of agricultural economics at Stellenbosch University.
"Increases in food prices are particularly tough on the poor as food makes up a larger part of their expenditure," said Leon Myburgh, Sub-Saharan Africa strategist at Citi Group.
The food price monitor showed that the poorest segment of the population spent almost 39% of its income on food, which was up from 34% in April last year. The five most popular food items consumed by this group had risen by 20%.
Rural consumers will feel the pinch more keenly than their urban counterparts. In April, rural consumers were paying R14.89 more than urban consumers for the same food basket, which was "significantly higher than the price difference reported in April 2011", the council reported.
Rural consumers pay more than R8 more for a 5kg bag of maize meal than urban consumers. An Iwisa bag of maize meal at Pick n Pay Online costs R28.49 at present.
"Last year, we needed to import maize from the Black Sea countries due to the low carry-out during the last part of the previous marketing year," said Lemmer. "They are suffering a drought currently, not as severe as in the US, but their exportable surplus has dwindled. To import from them might be costly."
"All the sharp increases in South African maize futures from mid-June onward are due to the sharp rise in US prices," said Myburgh.
The dollar maize price on the Chicago Board of Trade had increased by 54% since then. "The same can be said for wheat."
The board price for wheat jumped from $658 in mid-June to $887 last week. Sharp increases and decreases on the international price of these commodities "can have an immediate impact on the domestic futures price", Myburgh said. Grain price increases reflected "fully" on retail prices within four months.
Nevertheless, some foods have maintained only modest inflation. Fruits rose by about 4% and eggs marginally by just more than 2%.
But falling grain prices were reflected "slower and not always fully", said Myburgh, and prices were unlikely to revert to their previous lows, even after their actual costs decreased.
The price rises were part of a larger pattern, rather than an isolated food crisis, Vink said. "The 2007-2008 crisis was triggered by bad weather and low stocks."
Another driving factor is the diversion of a large part of the US maize crop for biofuel. A similar spike, fuelled by the same factors, took place in 2011 and now it was "déjà vu all over again", Vink said.
Although drought in the US "seems to be the main culprit", underlying factors such as low stocks, the oil price and the use of maize for biofuels creates a fertile ground for price hikes. "So if we have learned anything in the past few years, it is that these prices are more volatile and they are likely to remain volatile into the future," Vink said.
Besides the possibility of having to import maize, South Africa has become more reliant on wheat imports. Wheat production has declined from a position of almost self-sufficiency – 95% – to less than 50%.
The decline has been caused by the fact that South African wheat prices are too low and wheat production is not sustainable in the long run, Lemmer said. South Africa's main wheat imports are from Argentina and Germany. If these countries impose export tariffs or close their borders for wheat exports, as they did in 2008, "we are going to run into trouble," Vink said.
The latest Grain Market Report released on July 26 by the International Grains Council forecasts a worldwide decrease in demand for maize as feed – a reaction to the high prices – and some farmers will substitute wheat for maize in animal feed. South Africa followed that pattern last year.
Locally produced wheat
"It is not the norm, but it happens when we do not have sufficient maize available," said Lemmer. He said the Western Cape usually imported maize for feed from other parts of the country, or from overseas. But if the prices are too high, farmers in the Western Cape might switch to locally produced wheat.
"Keep in mind that we only produce baking-quality wheat in South Africa and no feed wheat. Therefore, high-quality wheat may enter the feed market," Lemmer said.
According to the Bureau for Food and Agricultural Policy's forecast, "the maize price will follow the world price," Vink said. That is, it will ease until 2014, but then increase again through to 2021.
Although food price increases will hit most of the population hard, the maize shortage can be "good for grain farmers and good for farm workers on the grain farms".
The country can also possibly benefit from shifting consumption patterns. "South Africa's consumption of white maize is in a long-term decline," Vink said. Because of that, some of the land and capital that is used for white maize are going into soybean and sunflower production.
"We are a net importer of these two commodities, so any increased production means less imports. The more we produce in South Africa, the more opportunity for value-adding," he said.
Obama acts as crop price hits all-time high
United States President Barack Obama moved to stem the impact of the US's worst drought in more than 50 years on Monday, directing the department of agriculture to buy up to $170-million of pork, lamb, chicken and catfish.
The move comes as the G20 group of countries was reportedly planning its response to drought and soaring food prices. The US is the world's largest exporter of maize, soya beans and wheat and the drought has already sent prices to record levels.
Obama made the announcement at the start of a three-day trip to Iowa, a swing-state the Democrats hope to win in November's election. The state has been hit hard by a drought that last week drove US maize prices to an all-time high.
The farming crisis is emerging as a key battleground in the presidential contest. Obama is trying to pass a Bill through Congress that he claims will aid farmers, but it has been stalled by Republicans over what they see as excessive costs.
Pressure for action intensified last week when the department warned that food prices would soar because the drought had forced farmers to abandon cornfields covering an area larger than Belgium and Luxembourg combined.
The department cut predicted yields for key crops, including maize and soya beans, and lowered production forecasts for eggs, milk and pork. Blaming "extreme dryness" in the central plains and the maize belt, the department said it expected this year's maize harvest to be the lowest since 1995-1996.
Obama is under pressure to drop laws mandating the amount of maize ethanol that must be produced. It will require about 40% of this year's crop.
The food he intends to buy will go towards "nutrition assistance" programmes such as food banks. Obama wants the department of defence to speed up purchases and said it was a good time to buy "while prices are low, and freeze it for later".
Last week the United Nations released a report that said world food prices had risen 6% in July, driven by a 23% spike in maize prices. Oxfam called for urgent action and said the price rise threatened a return to 2008 when similar price rises triggered riots around the world. The UN said a billion people were going hungry.
"This drought, combined with bad policies like ethanol mandates, has put the world's poor on a collision course with a food crisis," said Eric Munoz, senior policy adviser for Oxfam America. – Dominic Rushe © Guardian News & Media 2012