Food price threat to poor may overshadow credit crisis
November 26, 2007 Edition 1
Ethel Hazelhurst Johannesburg
While financial markets are focused on defaulting debt, a more serious problem of food prices may be on the horizon.
"Over the past few months we have seen the emergence of a new threat to stability in our region: food prices," said Peter Eerdmans, a portfolio manager at Investec Asset Management.
"And it is not just an economic threat; we have seen significant social and political fallout in Mexico and Italy," said Eerdmans.
These countries have already experienced instability due to food price increases. The implication is that similar events could take place in South Africa, if food prices continue to rise.
Eerdmans pointed out that the food price index of the Food and Agriculture Organisation (FAO) of the UN rose by 37 percent in the 12 months to September, after 9 percent growth last year.
He quoted the FAO's publication, Food Outlook, which says the world has rarely felt "such a widespread and commonly shared concern about food price inflation, a fear which is fuelling debates about the future direction of agricultural commodity prices, in importing as well as exporting countries, be they rich or poor".
Andre Jooste, an agricultural economist and senior manager at the National Agricultural Marketing Council, said the prices to watch were those of staple foods, because when these prices rose, the poor bore the brunt.
In South Africa, food inflation has been climbing steadily from an average of 2.2 percent in 2005 to nearly 12 percent over the year to September.
The price of grain products - an important component of the diet of low-income people - rose nearly 16 percent in the period, compared with overall inflation of 7.2 percent.
Jooste said there were already "signs that people are uncomfortable about the price increases and there could be vocal outcries from poor communities if the trend continues".
While, normally, local food shortages can be addressed by opening up South Africa's markets to food imports, there are already global food shortages.
The FAO said "extreme prices in agricultural commodities" were not new, but the simultaneous hike in most major food and feed commodities was "a very rare occurrence".
Eerdmans said developing countries would suffer most.
While the FAO estimates that the global food import bill for this year will be 20 percent higher to $475 billion (R3.2 trillion), developing countries will pay 25 percent more.
South Africa will be a net importer of maize this year for the first time since the 1991/92 season, according to John Purchase, chief executive of the Agricultural Business Chamber.
He said imports would amount to 1.5 million tons out of total consumption of 8.7 million tons, adding that wheat imports amounted to about 1 million tons a year over the past three or four years - about 30 percent of total consumption.
Against this backdrop, Jooste said: "There is a need to boost food production in South Africa, to a point where we can better provide for our own needs, so we can avoid a situation where we are highly dependent on imports and fully exposed to high international prices."
When there are domestic shortages and international prices are high, local prices rise to the same level. This is particularly problematic in the present high inflation environment. When more is produced locally, prices tend to fall back below import parity.
Jooste said South Africa needed a big and continuous investment in agriculture. He advocated partnerships between the public and private sectors.
He said: "Among other things, we need to reduce the cost of moving food, which means a big investment in transport infrastructure."
Jooste also urged investment in new technology to "increase the productivity of our producers".
