Bumper maize crop: Will food price hikes slow?

A bumper maize crop this year could see food prices fall, offering welcome relief to consumers facing rising interest rates and fuel costs.

Latest estimates from Grain SA’s crop estimates committee put the maize crop at about 10,7-millon tons—the largest in three years—with the price remaining stable over the past 12 months, says Neels Ferreira, chairperson of Grain SA.

Professor Andre Jooste of the National Agricultural Marketing Council (NAMC) says high international maize prices are likely to plateau owing to low stock levels on the international market.

With this large crop South Africans can expect to see the maize price move closer to export parity prices, which should offer consumers some relief.

According to the NAMC the price of maize increased by 33,02% year- on-year, between January 2007 and January 2008. Over the same period a 5kg bag of maize meal increased by 28%.

Jooste says that given how closely the price of maize meal follows the price for maize, it is reasonable to conclude that any drop in the price of maize will see a similar drop in the price of maize meal.

Earlier this week the Congress of South African Trade Unions raised concerns that the poor are suffering because of the rocketing price of basic foods, oil and many other commodities.

But despite the bumper crop, farmers are not entirely happy.

The current price for maize delivered in Randfontein is R1 800/ton, which is one of the lowest maize prices in the world. Ferreira said the price had been pulled down by the rand-dollar exchange rate which worsened considerably since last year. Although the local price had stayed the same, world prices—largely set by the Chicago futures market—had moved upwards.

According to the South African Grain Information Service, import parity prices for maize have risen from around R980/ton in February 2006 to R2 400/ton in February this year. Export parity prices remain far lower at about R600 in 2006 and R1 370/ton in 2008.

This year’s local crop and low prices relative to world markets mean that maize can be exported not only to neighbouring countries such as Zimbabwe, Botswana and Namibia, but also to destinations requiring deep-sea shipping such as Japan. Maize production cannot, however, be sustained at these price levels according to the NAMC.

“Trends over the past decade show that farmers cannot survive and marginal land is moving out of production, leading to a scenario where prices tend to increase towards import parity levels,” it said in its quarterly food price monitor released in February.

“We’ve got a bit of a Catch-22,” says Jooste. Low prices for the consumer “are good news”, but if they remain too low, maize planting becomes unsustainable for farmers because they cannot finance rising input costs.

Ferreira offers a similar outlook saying rising input costs mean that farmers won’t be able to produce the same amount of maize next year at current price levels.

An average of 100 litres of diesel is used per hectare of maize, but fuel prices have increased sharply over the past year and are set to remain high.

Fertiliser prices have also surged, in some cases by 700%, along with the cost of other chemicals such as herbicides and insecticides. The cost of tractors and implements has also gone up and could increase further. If agricultural input costs keep rising, food inflation in turn could climb higher.

“At present levels of commodity prices, we will not necessarily be able to plant a major crop,” he said. “This is not a good picture for the future.”

These developments come after a few difficult years, says Jooste, and any profits made by farmers now will go into recovering previous losses. He also says that emerging farmers need sustained higher prices to enable them to enter the market and ensure returns. “This could place additional pressure on [emerging farmers],” he says.

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