Food price surge sparks hunger fears as reserves dip

Bloomberg

A tractor cuts down corn in a field designated as zero yield on a farm in Vigo County near Terre Haute, IN, Tuesday, July 31, 2012. Vigo county is one of dozens in Indiana that have been designated federal disaster areas because of a persistent drought that many say is the worst in a generation.

Ayanda Mdluli

Food shortages are likely to spiral as prices surge, with the food price index of the Food and Agriculture Organisation (FAO) edging closer to levels last seen during the 2008 global economic crisis. In July the index increased by 6 percent after three months of declines.

This spells mixed fortunes for the domestic economy, as consumers face food security problems while producers will benefit as international demand for food grows.

The food price index calculates monthly changes in the global prices of a basket of foods. Last month the index climbed 6 percent to 213 points, up 12 points from June.

The FAO attributed the sharp increase to “a surge in grain and sugar prices”.

The index painted a dark picture for grain reserves for this year as more than two thirds of US crops are produced in areas affected by the worst drought in 50 years. Reports indicated that farmers in the US experienced crop losses amounting to an estimated $18 billion (R147bn).

This development could result in food shortages in countries that rely on imports of maize, wheat and soya beans.

Information from Oxfam, a British-based NGO that deals with food security, injustice and poverty issues, indicate that more countries in sub-Saharan Africa could go hungry unless proactive steps are taken to supply financial aid.

On the other hand, the FAO food price index increase could stimulate production, as farmers seek to take advantage of the high demand for agricultural commodities due to the notion that higher profit margins for producers is key to food security.

Dawie Maree, an economist at AgriSA, said it was difficult to compare the current prices to the 2008 peak because at that time, oil prices were at a high, about 30 percent above the current price. He did concede that food prices were under pressure. The main concern for South Africans would be food affordability, which might be an issue due to the exchange rate and international prices.

The Group of 20 nations recently called an emergency meeting to find solutions to the food crisis that is being fuelled by the drought in the US, the biggest exporter of maize.

Media reports suggested the US government might have to grant farmers a bailout package of up to $10bn.

This raises optimism for increased demand for South Africa’s yellow maize, white maize and soya beans, pushing local prices even higher.

Ernst Janovsky, the head of agribusiness at Absa, said higher prices resulting from these developments could stimulate production and increase profit margins for farmers.

From May to the first week of August, about 522 000 tons of white maize was exported to neighbouring countries. Last year the overall export figure was about 440 000 tons.

It is unclear how much maize has been ordered for export. Independent exporters declined to reveal the details as it was “privileged business information”.

However, Business Report determined that the National Agricultural Marketing Council is in the process of establishing a committee that would publish intentions to export from various exporters. The committee is set to be revealed in November.