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In SA we don’t expect a shortage of food supplies - Agbiz

Food prices with grain-related products and oils and fats could register notable price increases, says Agricultural Business Chamber chief economist Wandile Sihlobo. | Bloomberg

Food prices with grain-related products and oils and fats could register notable price increases, says Agricultural Business Chamber chief economist Wandile Sihlobo. | Bloomberg

Published May 24, 2022

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WHILE there were some severe cases of food insecurity in South Africa, attributed not only to the higher food prices but also the general lack of household income, this was more of a socio-economic issue and not merely agriculture and the food industry, Agricultural Business Chamber(Agbiz) chief economist Wandile Sihlobo said yesterday.

He said in essence, South Africa had its fair share of challenges regarding food security, but the conditions here at home were not as dire as what was expected in some regions of the world.

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“The story of ‘The coming food catastrophe’, as The Economist magazine puts it this week, might be a reality for many parts of the world, but we seem to be well cushioned against it, at least from a national level, in the near term,” Sihlobo said.

He said the big stories in the global media this past weekend, such as the cover story of The Economist magazine, were on the potential global food crisis.

The effects of the Russia-Ukraine war on grains and oilseeds markets, along with the ban on exports of wheat and palm oil by India and Indonesia, respectively, added to the anxiety in the markets.

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Additionally, they were closely monitoring the concerns about the 2022/23 global grains and oilseeds supply amid dryness in parts of the US and Europe, along with fears that higher fertiliser prices could prompt some farmers to reduce their usage, all of which would have consequences for yields at the end of the season.

The US Crop Progress data release for the week of May 15 showed maize and soybean plantings were still behind the 2021 pace because of dryness in some regions of the US. For example, about 48 percent of the US maize hectares had been planted compared with 78 percent compared to last year. Moreover, 30 percent of the soybeans had been planted compared with 58 percent in the corresponding period last year.

According to Sihlobo, within Africa, which is typically a net importer of roughly $80 billion (R1.3 trillion) of food and agricultural products a year, the challenge was severe.

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He said that in the East Africa region, the conflict in regions of Ethiopia, for instance, had already displaced farmers and resulted in food insecurity worries.

The drought in the region leading to potentially poor harvest in Kenya, among other countries, was an additional pre-existing challenge which would now be exacerbated by the Russia-Ukraine war disruption on grains and oilseeds, along with fertiliser and fuel prices.

Sihlobo said that in South Africa, the picture was slightly different from most African countries, at least from the food availability perspective.

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“We don’t foresee a shortage of food supplies. The major impact of the disruptions in global agricultural markets will mainly be through price transmissions. South Africa is generally a net exporter of food and agricultural products and has had sizeable harvests in the past few years, with an expected good crop in the 2021/22 season.

“The primary major food staples the country imports are wheat, rice, palm oil and poultry products. From discussions with major importers of these products, we believe that the country has secured sufficient supplies to last for some time.”

With regards to domestic food prices, which he said were a major risk, Sihlobo said the picture remained mixed within the food basket.

“For example, the data released by Statistics South Africa this past week showed that the country’s consumer food price inflation decelerated to 6.3 percent year on year (y/y) in April 2022 from 6.6 percent y/y in the previous month. This is on the back of relatively softer price increases in meat; milk, eggs and cheese; and vegetables.”

He said the data was roughly within their expectations, and the food products price variation would likely persist in the coming months.

“In other words, fruit, vegetables, milk, eggs and cheese, and to a lesser extent, meat, could see softer price increases in the coming months. Meanwhile, grain-related products and oils and fats could register notable price increases. This will mirror the price movements we are currently observing in the agricultural markets,” Sihlobo said.

Since the war in Ukraine began and disrupted the global grains market, the agricultural commodity prices have increased significantly, with the FAO's Global Food Price Index in April averaging 158 points, which was up 30 percent y/y, coming from a record high seen in March.

However, the recent ban on palm oil exports by Indonesia (now lifted), the ban on wheat exports by India, and the expected lower wheat harvest in the 2022/23 production season had since added renewed upside pressures to agricultural commodity prices.

These was predicted to likely reflect on the FAO's Global Food Price Index update to be released at the beginning of next month. As interlinked to the global agricultural markets, South Africa had also experienced increased agricultural commodity prices.

“The resulting observation of these developments is a potential uptick in the cereals, and oil and fat products prices in the consumer food price inflation basket. The additional upside risk to the domestic market is also the rise in fuel prices,” Sihlobo said.

With regards to fruits and vegetables, he said South Africa had a sizeable harvest, and the disruption in fruit exports within the Black Sea region could also add downward pressure on domestic prices; hence they held a generally favourable view of these product price directions for the coming months.

He said the one essential product, whose price trend remained uncertain, was meat as the recent outbreaks of foot-and-mouth diseases had led to the temporary closure of some key export markets for the red meat industry, thus adding downward pressure on prices. On the other hand, there were fears of a potential increase in poultry product prices, which could lessen the benefit of softer red meat prices.

Overall, various factors in the food market all push in opposing directions in the short term.

“With that said, we believe that South Africa’s consumer food price inflation could average 6.0 percent y/y in 2022 (from 6.5 percent in 2021). The base effects, along with meat, fruits and vegetables, will likely provide a constructive price inflation path ahead,” Sihlobo said.

The AU has declared 2022 to be the Year of Nutrition, under the theme, “Strengthening Resilience in Nutrition and Food Security on the African Continent”. The continent celebrates Africa Day annually on May 25.

Weighing in on this theme, Southern Africa’s largest manufacturer and distributor of major domestic appliances, Defy Appliances chief executive Mustafa Soylu said that inequality in the global agricultural and food systems was the primary cause of hunger and malnutrition.

“Despite the fact that the world has enough food for its population, billions of people are food insecure; the majority of whom reside in Asia and Africa. Technological innovation is a viable option to address food insecurity in Africa, as it offers solutions to meet the changing nature of food processing and production,” Soylu said.

He said this was true at a macro level, involving innovation in agricultural systems and sustainable supply chain management, but also at the most granular level where innovative appliances had the ability to increase the efficiency of the way that Africans use energy to produce and store food.

Soylu said that an investment into research and development, human capital, infrastructure and knowledge transfer would become ever more crucial if the potential of technology was to be harnessed effectively as a direct way of addressing the issue of food security.

BUSINESS REPORT

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