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SA counts losses from drought

Economy

Johannesburg - South Africa’s economy and businesses are beginning to count their losses from the devastating drought that has wreaked havoc throughout the country.

Economists have warned that the drought will push food inflation higher as farmers scale down production to avoid taking risks on the uncertain weather conditions. This, they said, could ultimately feed into consumer inflation and higher interest rates.

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A dead cow lies on the banks of the dried-up Black Umfolozi River in Ulundi, Kwazulu-Natal, South Africa. Picture: Shiraaz Mohamed

Azar Jammine, an economist at Econometrix, said the drought would cut down agricultural production and curtail overall economic growth by at least 1 percent.

Jammine said that, because of the currency’s recent slide, farmers would struggle to contain input costs. This would result in more exports sought to feed livestock.

“For a country that has been able to sustain its own supply to meet its domestic demand, it now needs to turn to imports. This would put downward pressure on the balance of trade,” Jammine said.

“It is not only the consumers who are going to feel the pressure, but the general economy, too, because people will not be able to participate actively in normal economic activity.”

This week reports emerged that crop farming in the North West and Free State provinces had all but come to a halt, with farmers planting less than 10 percent, while in Mpumalanga, planting was at less than 40 percent.

Agri SA executive director Omri van Zyl said the situation was being made worse by the fact that the planting season was already six weeks behind because of the drought.

Van Zyl said the real impact would be felt during the harvesting season, when production would be much lower than expected if the drought continued.

Huge costs

“There is too much uncertainty in the industry, so most farmers do not want to take a risk and end up having to carry huge costs as a result,” Van Zyl said. “The moisture in the soil is just too low for any productive farming to take place.”

The SA Chamber of Commerce and Industry (Sacci) said it planned to lobby the government for lenience from financial institutions.

Sacci chief executive Alan Mukoki said the organisation was concerned about the effects of the drought on the overall industry in South Africa.

“We feel for our members. We will urge banks to take it easy on them in terms of debt servicing. A lot of people are insured, but you cannot be insured for the long term,” Mukoki said, adding that the drought was a threat to economic growth and inflation, and would probably add to unemployment.

The Red Meat Producers Organisation said most of its members were selling livestock at below-market prices to avoid the fatalities that had left many of their stock dying of dehydration.

The organisation’s chief executive, Gerhard Schutte, said that in KwaZulu-Natal alone, more than 40 000 cattle had perished from dehydration. “If you consider that in a good season, we sell cattle at an average price of R6 500 each, then you will see that we are losing millions of rand, and that’s in one province only.

“We are collecting information from other provinces, but I am afraid the figure could go well into the billions.”

Emergency meeting

Yesterday, organised agriculture held an emergency meeting with the country’s big commercial banks to discuss the effect of the rapidly deteriorating drought situation on the broader agricultural sector and food security in particular.

The meeting agreed to set up a task team of all the major stakeholders in the industry, including Agri SA, the Industrial Development Corporation and the Department of Agriculture, Forestry and Fisheries to draft action plans that would assist in mitigating the indicated risks that this serious drought posed.

Van Zyl said the plans would also include engaging the government to ensure food security and the sustainability of the industry.

“Good rainfall in the summer rainfall region of South Africa over the next months is possible and can still break the drought cycle and ensure relief for crop and livestock farmers especially,” Van Zyl said.

“However, scenarios are increasingly pointing to a situation where significant imports of maize, as a staple food crop, will become necessary, as well as the provision of fodder for breeding herds of livestock to be maintained.”

Christo Conradie, VinPro’s manager, said although it was still too early to quantify the real effects of the drought, the wine industry was expecting a smaller harvest this season.

“This might have a negative effect on producers’ financial bottom line,” Conradie said.

“The nature of the wine industry (as opposed to other agricultural commodities), is also as such that there is not necessary a direct correlation between supply and demand and consumer prices moving upwards or downward.”

BUSINESS REPORT

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