Farmers hobbled by high input costs

Food prices are expected to rise rapidly in the next year because farmers are planting less as input costs escalate.

A report released last week by the Bureau for Food and Agricultural Policy (BFAP) says input costs increased tremendously in the first quarter of 2008 on the back of already increasing input costs in 2006 and 2007.

Prices of fertiliser, driven by high oil prices, have increased by as much as 400% since 2006. Combined input costs are projected to rise by 53% in 2008 and further in 2009.

The report, which presents forecasts for South African agricultural production, consumption, prices and trade up to 2014, indicates that South Africa’s economic growth is expected to slow in 2008 and 2009 due to escalating pressure on consumer expenditure and constraints on supplies.

In April Finance Minister Trevor Manuel urged South Africans to go back to working the land to counter the global food crisis and ‘to plant on every piece of arable land”.

He was speaking from the annual International Monetary Fund/World Bank meeting in Washington, where World Bank president Robert Zoellick labelled rocketing food prices a global emergency.

The BFAB projects annual growth of just 2,8% in the contribution of the agricultural sector to GDP from next year to 2014 due to sharply higher input costs. This follows a 40% increase in 2007. Growth is expected to increase by 17% this year as the higher input costs kick in.

‘There is definite scope for new policy-making to enhance growth in the agricultural sector. If we don’t start thinking differently about agricultural policy, growth in the sector will not be enough to produce enough food and create employment opportunities,” said Johan Kirsten, head of the department of agricultural economics at the University of Pretoria and member of BFAP.

A joint study by the Organisation for Economic Cooperation and Development and the United Nations Food and Agriculture Organisation released last week said agricultural products will remain at high levels globally the next decade.

‘There is a false perception that farmers are going to produce more food because of escalating food prices. The truth is it is becoming increasingly difficult to farm due to increasing input costs. If there isn’t a dramatic intervention by government soon, food prices are going to keep on rising,” said Ferdi Meyer, member of BFAP and senior lecturer in the department of agricultural economics at the University of Pretoria.

‘Despite a very good maize and sorghum harvest this year, prices are still increasing instead of decreasing due to the dramatic rise in input costs. The good harvest did not encourage farmers to plant more. Prices are at a completely different level,” he said.

Preliminary projections by BFAP indicate that wheat prices are expected to decline in the next year because of lower world prices, but maize prices are projected to increase due to lower plantings in the 2008/09 production season. Meyer said the cost of producing a crop of mealies doubled in the last year.

As a result, bread prices are expected to remain relatively constant over the next year, whereas maize meal prices are expected to increase. In South Africa a general shift out of maize production to sunflower, soybeans and wheat is expected as relative net returns have drastically improved in the production of these commodities.

The consumption of meat is expected to fall until 2010 when economic growth is expected to resume.

Prices are expected to increase marginally in 2009 and then start to increase at higher rates from 2010 onwards. Dairy prices are expected to remain strong because of a weakening exchange rate and local production coming under pressure from high feed prices.

Furthermore, the cost of vegetables such as potatoes, onions and tomatoes is ‘the most worrying aspect of rising food prices”.

Meyer said fruit and vegetable prices could rise further by 20% in the next year. This would be on top of dramatic increases last year. The input cost of potatoes will have risen by 180% from 2007 to 2009.

  • The price of maize is not expected to increase in the next six months. But as of the beginning of next year an increase of 5% to 10% is expected.
  • Bread prices are expected to stay constant, with slight increases in the next two to three months.
  • Sunflower oil is expected to stay constant and might even decrease slightly in the next few months.
  • Wheat prices will decrease in 2009 and 2010 as the world price decreases due to increased production.
  • Meat prices are expected to stay more or less constant for the next two years.
  • The prices of vegetables are expected to rise further in the next year by up to 20%.
  • Dairy prices will continue to increase as they have in the past two years. There is, however, the possibility of greater volatility because of the tight balance between demand and supply.
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