South Africa’s floundering currency is driving food prices higher and feeding inflation — and prices are expected to continue their upward spiral into next year as the effects of the rand’s weakness intensify.
Further increases in the cost of basic foods are expected to deepen the desperation of hundreds of thousands of South Africans who already live on the brink of starvation. Meanwhile, famine is threatening the lives of millions of other poor people in the region.
The inflationary spiral is also having a devastating effect on farmers. Many cannot raise the prices of their products enough to cover increased costs. The viability of many agricultural operations is under threat as a result.
Whereas weather patterns and, in the case of Zimbabwe, political policy are creating famine in other parts of southern Africa, in South Africa itself the drivers of starvation are currency depreciation and inflation.
An estimated 13-million people in Southern Africa face starvation while one in two South Africans are poor.
The rand has lost 23% of its value since July 2001. The food price component of the production price index (PPI) rose 26,5% between July 2001 and July 2002, says Statistics SA.
The increased costs of imported farming supplies, including agricultural machinery and equipment, fertilizer and diesel, are hammering farmers.
Prices of commodities such as maize, wheat and sunflowers are driven by international prices, which reflect global supply and demand. Local prices therefore are a function of the weak value of the rand. Everyone along the supply chain, and ultimately the consumers, has to pay more for food so that farmers can stay in business.
Almost all animal feeds contain maize and the local price of yellow maize rises as the rand continues to fall, which affects the cost of feeding livestock.
Futures contracts on yellow maize for September 2002, March 2003 and July 2003 are trading above R1 600 a ton, so no relief is in sight for yellow maize buyers. Only 14 months ago, before the rand collapsed, prices were about R900 a ton.
“Egg producers are under severe pressure as price rises have not kept pace with their input costs,” said Zach Coetzee, general manager of the South African Poultry Association. “Several have gone out of business or are trading at a loss.
“Broiler producers are in a slightly better position. Unfortunately chicken and eggs have to be more expensive so that producers can survive.
“But we as an industry can’t be held responsible for the currency. We are paying the price for other peoples’ mistakes, namely the mismanagement of the economy and the consequent drop in the rand’s value.”
Dairy farmers trade in an international environment of stagnant prices. Now they have to contend with ever higher costs for animal feed. “Milk farmers are in an impossible cost squeeze situation,” said Robert Wesseloo, chairperson of Milk South Africa.
Many dairy farmers are closing their operations in the country’s interior and moving to the temperate coastal region where there is grass for cattle. Similarly, the intensive farming of beef cattle on feedlots is decreasing in favour of veld grazing.
Spencer Watson, chairperson of the South African Feedlot Association, conceded that meat prices have risen considerably in the past few months. “But this increase cannot make up for the rise in feedlot input costs and if the consumer price rises are too steep this is also no good.
“Last Christmas carcass prices rose above R14 a kilogram and sales began to drop. This is apparently a kind of ceiling price, and when prices rise higher than that, consumer resistance starts to set in,” he said. White maize futures contracts for March 2003, May 2003 and July 2003 are trading around the R1 800 a ton mark, so prices are expected to remain high.
Jannie de Villiers, executive director of the Chamber of Milling, said: “I can’t see any substantial decrease in maize meal prices in the next six months. In fact, the high prices have still to come.”
With dairy, meat, poultry, eggs and maize meal so expensive, consumers are turning to vegetables, and this is in turn making them more expensive.
Mike Cordes, fresh produce marketing consultant, said: “The ‘staple’ vegetables — tomatoes, potatoes and onions — are fetching exceptionally high prices on the 17 fresh produce markets throughout the country.
“There is strong demand coupled with short supply for some kinds of vegetables. Many farmers decided to plant maize instead of potatoes, so there is a shortage and potatoes are fetching premium prices.”
Ernst Janovsky, senior agriculture manager at FNB First National, said: “The exchange rate is the wild card here. The war looming with Iraq could influence the exchange rate. But if there is a run on gold, the currency could strengthen.”
Agricultural exporters are making hay while the rand is weak, according to figures from the National Department of Agriculture.
The Economic Review for the year ended June 30 2002 reports that the value of exports increased by 28,2%, from R17424-million for 2000/01 to R22341-million for 2001/02.
According to the 2001/02 export values, wine (R2 367-million), sugar (R2 168-million), citrus fruit (R1 938-million), grapes (R1 468-million) and fruits and nuts (R1 146-million) were the most important export products.
During 2001/02 South Africa’s five largest export destinations for agricultural produce were the United Kingdom (R2 477-million), The Netherlands (R2 251-million), Japan (R1 352-million), United States (R1 158-million) and Mozambique (R1 152-million).
The United Kingdom and The Netherlands were the destinations for about 21% of total agricultural exports.