TJ Strydom
ECONOMICALLY vulnerable South Africans should brace themselves for big food price hikes in the next few months.
A lighter wallet or an emptier belly is the choice facing most consumers as the effects of price hikes filter down the rest of the economy.
Some analysts, like British investor Jeremy Grantham, are already calling it a global food crisis that is "badly underestimated by almost everybody”.
"The price of maize, wheat, and soy in just the last five weeks rose 30% to 50% to reach and exceed the 2008 crisis levels, this time despite enormously increased planting,” Grantham said.
In South Africa, maize already cost double what it did in 2010 and almost 50% more than last year, economist Mike Schussler said.
He said maize was particularly important because it was a staple for many South Africans – especially the very poor.
More expensive maize also influenced the prices of food like bread and meat.
But the poor were especially vulnerable as a large part of their income went to food.
Although the very rich spent less than 10% of their income on food, the poor had to cough up almost 40% of their earnings on food, Schussler said.
Food inflation of above 10% – which Schussler expects soon – will seriously hurt people’s buying power at a time when economic conditions are deteriorating.
Low growth prospects moved the Reserve Bank to cut the interest rate last month.
Absa Agribusiness head Ernst Janovsky forecast last week that food inflation would increase between 12% and 15% in the next six to eight months.
If food inflation hits 15%, a 5kg bag of maize which now costs about R28 would top R32 in a year. International price shocks could make it much worse.
The US, a major consumer and producer of maize, is experiencing a drought that has caused prices to sky-rocket. The problem in South Africa could be compounded by an increase in the cost of seed.
A merger between South African seed producer Pannar and US- based Pioneer Hi-Bred could cause more headaches – seed prices might rise by 12%.
This was according to the companies’ estimates in a submission before competition authorities, economist Sarah Truen said.
Schussler said seed was the second-largest cost for maize farmers.
It had a larger share than labour or fuel, and made up between 12% and 16% of total input costs.
He believed the merger could see seed prices spike by as much as 30% and leave Pioneer Hi-Bred and the US giant Monsanto with 90% of the South African market.
The merger between Pioneer Hi-Bred and Pannar has been approved by the Competition Appeal Court.
The Competition Commission, however, has asked for leave to appeal against the ruling.
Farmers already operate on very thin profit margins and they will be forced to pass these costs on to consumers.
Meat producers will also be affected as maize is a vital animal feed.
Even when the drought in the US ended and maize prices stabilised, there was a risk that prices would not come down as easily here, Schussler said. "South African consumers will not receive the full benefit from improved growing conditions and future declines in global maize prices if our costs rise quicker then those of other countries,” he said.
Among the other input costs farmers had to contend with were rising electricity prices, wage increases of more than inflation and higher fuel costs. Fertiliser was also on the up because of higher commodity prices, Schussler said.
