Food prices are set to sky-rocket, as a devastating drought has forced maize farmers to their knees. The drought, along with competitive international markets, has lead to soaring maize prices in South Africa.
Many farmers believe this is the worst drought in 40 years, and weather statistics have indicated they are not far off.
The weather service said that this year’s rainfall was the lowest in the country’s maize-growing regions in half a century.
As the maize price hovered around R2000 a tonne during the past month, consumers held their breath to see if the sky-high maize price would have a significant effect on food prices.
But it is now becoming increasingly clear that South African shopping trolleys will be much lighter this year than last year.
“I think a difficult year lies ahead for South Africa,” said Johann Kirsten, a member of the National Agricultural Marketing Council.
“We are heading towards the same situation as in 2002/2003, when food prices spiked significantly. It took almost three years for food prices to fall again.”
In 2002, food inflation ranged from 23% for very poor income groups to 19% for very high income groups, driven by a high maize price. But this year’s maize price has already reached record highs.
Ina Wilken, chairperson of the South African National Consumer Union, believes the price hikes will be even worse than in 2002.
“I am very concerned about what is happening,” she said. “We know that, even if there is just rumours about inflation, shops raise their prices.”
Because of the bad harvest, South Africa will have to import almost one million tonnes of maize to meet its commitments. Kirsten said, because of this, South Africa is constrained by high international prices.
The commodity has been trading internationally at record highs, driven by the world’s move to produce more biofuels made from maize. Futures trader Rudi Swanepoel predicted that, because of this, there would be no relief in the immediate future concerning the high maize price, because world demand for grain was just too high.
“It will stay high for at least another two to four years,” he said.
Economists said that maize prices, three times higher than they were two years ago, have risen by 75% during the past six months. This has had a knock-on effect, with meat, poultry and dairy products rising by 70%, because farmers use mostly maize to feed their livestock.
“Poultry, milk, cheese, eggs and meat will be directly affected,” he said. The soaring maize prices will hit the poorest of the poor hardest, as they are the main users of maize meal.
“It will be basic foods that will be hardest hit,” Wilken said. “Things such as maize, poultry and bread. The poor are going to struggle against this.”
Kirsten estimated that the poorest 50% of South Africans are dependant on pap to fill them, though other economists predict that it might be as high as 70% of South Africans.
“The government will have to monitor quite closely how the price of maize will affect the poor,” he said. “Although we are not talking about famine by any means, they might have to intervene by giving subsidies, or making up food packages to assist struggling households.”
Though the agricultural marketing council’s report for the first three months of this year is only expected in mid-May, Kirsten said the council’s last report, released in February, already rang alarm bells.
The report, which focused on food price changes between December 2005 and December 2006, said food prices increased by an average of 7,88%. This was more than the 3% to 6% inflation target of the South African Reserve Bank.
The council said super maize meal prices increased by more than a third. Beef mince increased by 14,86% and brisket beef by more than a fifth.
Cooking oil, another essential item, rose by 19,51% and rice by 11,96%. Egg prices rose by 19,59%.
But, even though the maize price will have some effect on meat prices, the report also said reduced rainfall could result in poor grazing conditions, resulting in an increased supply of weaners to auctions and feedlots.
“This could potentially lower weaner and abattoir prices,” Kirsten said. Potentially, the council said, consumers could even expect relief from the very high retail prices of fresh red meat.
Interestingly, the consumer price index for food decreased to 8,0% by February 2007 from 8,6% in January 2007. StatsSA said the higher rate in January was the result of annual increases in the prices of food.
Kirsten and Wilken were also concerned about the effect of the rising petrol price on food prices.
“Fresh produce has to be transported and, while it is a small charge to the overall price, the consumer pays. It is just another nail in the coffin,” Kirsten said.