Johannesburg - Food producers will continue to face pressure from the record drought as recent weather reports show a weakening of La Nina patterns, dampening South Africa’s hopes for a strong rainfall going into spring and summer.
La Nina is a climate pattern that describes the cooling of surface ocean waters and as a result leads to wetness on the soil, which is good for crop plantation.
The country has failed to meet its maize production of 10.5 million tons a year for the 2015/16 season due to the worst drought in more than 30 years.
Profits from food producing companies, such as Astral Foods and RCL Foods, have already come under pressure as a result of the drought.
RCL Foods, the country’s largest poultry producer, on Tuesday reported a decline in headline earnings per share from continuing operations by 11.9 percent to 964.5c a share during the presentation of its annual results for the year to end June.
The company said its chicken and sugar units were under strain due to the record drought that had driven up feed costs and reduced crops.
“We are hoping the drought will reverse and that we will see some good rains, which will have a pervasive impact on our business,” chief financial officer Rob Field said.
Astral Foods’ chief executive said in a company update in July that the drought had had a negative impact on its profitability. He warned shareholders that the drought had negatively impacted its poultry business. He said he expected the situation to continue until next year until the projections for 2016/17 were released.
The Australian Bureau of Meteorology, recently revised down their estimate for La Nina occurrence to just 50 percent from the previous level of 65 percent.
Recovery
The SA Weather Services also said yesterday that most parts of South Africa were still experiencing drought conditions and were presumably under water stress, despite the fact that the strong El Nino event of 2015/16 had fully dissipated.
“The recovery of South Africa from drought conditions may take some time, depending on rainfall and temperature conditions over the coming spring through summer 2016/17 season,” it said.
But Paul Makube, an agricultural economist at First National Bank, said it was too early to press panic buttons just yet.
“It doesn’t mean that we are in trouble if La Nina is revised down to 50 percent. The 50 percent means we are going to have normal rainfall because a 70 percent is also bad because it can lead to diseases in the livestock, damage in crops and the farmers won’t have a chance to plant. So I am not worried about the reversed statistics for the country.”
Makube said countries came up with different La Nina projections anyway. “The US one still put us (South Africa) between 50 to 60 percent.”
Wandile Sihlobo, a senior agricultural economist at Agricultural Business Chamber (Agbiz), warned that it was still early to ascertain the 2016/17 maize production.
“On Tuesday we noted that industry estimates for 2016/17 maize production vary between 12.3 and 13 million tons. However, these estimates are largely underpinned by the assumption that climatic conditions could improve to normal or above normal rainfall,” Sihlobo said. “Therefore, in an event of a drier season or less than normal rainfall, these estimates could possibly be revised down.”
Efficient Group chief economist Dawie Roodt said the drought would increase input costs and push maize prices higher.
“The customers are not in a strong position currently to absorb these costs. The businesses can’t pass on the costs to the consumers who are already squeezed because of the slowdown in the economy,” Roodt said.
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