File image: Reuters
File image: Reuters

The economics of pap

By Thabi Nkosi and Wandile Sihlobo Time of article published Nov 12, 2015

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Pretoria - The world of pap (cooked maize meal) revolves around the production of the raw commodity, maize. The past year has been a tough one for maize, as current drought conditions have resulted in decreased production of the crop.

This has prompted South Africa to, for the first time in seven years, look to external markets for additional maize supply. Usually, the country is self-sufficient with respect to maize production; producing enough maize for the local population and still having capacity to export to the global market.

While the dry conditions this year did not affect South Africa's maize self-sufficiency status, following last year record high crop, South African exporters did find it increasingly difficult to meet regional needs. A second consecutive season of dry conditions, as predicted by experts, will not only cause a further tightening of maize exports but will also mean that South Africa could be faced with a domestic maize shortage.

With maize being one of the country's most important staple crops (especially for poor households) and a major animal feed input for our thriving livestock industry, the likely shortage of maize suppliers has placed a question mark over South Africa's food security status in the coming year.

Noting this, one can be certain that South Africa will have to import maize in the coming year to maintain the stability of supply. Grain SA estimates, in an event of a second consecutive drought, South Africa may have to import as much as 2.4 million tons of total maize (white and yellow) at an approximate cost of R8.4 billion to the South African economy.

As with any country facing tight food stocks, importing food is inevitable and may indeed be the only option. While imports may appear to be a quick-fix, three factors throw a spanner in the works and may stand in the way of stable supply and general food security.

Factor 1: The price of imported maize is higher than that of locally produced maize

There are ample supplies of maize in the global market, with the International Grains Council estimating that countries around the world have roughly 125 million tons of maize available for export. At the same time, international maize prices are down by 8 percent year-on-year.

Although this is encouraging for a country such as South Africa that might be looking to import, the effects of the weak rand combined with logistical costs erodes our country's ability to benefit from low international prices. An importer looking to import white maize would have to pay at least R300 per ton higher than the SAFEX traded price, an import parity price. These higher commodity costs will inevitably filter through the food value chain to result in higher food prices for consumers. This year alone, maize meal (pap) prices have increased by an average of 14 percent from a year ago; with this expected to be higher in months to come.

With more than half of the South African population not having access to enough food according to the Human Sciences Research Council, such increases will certainly pose a serious challenge. Going into a new fiscal policy planning cycle, it would be prudent for policy-makers to start considering mechanisms to alleviate the adverse effects of predictably higher food prices, particularly on poor households.

Factor 2: Global supplies of white maize are limited

Less than 10 percent of the traded global maize is white maize. It is a little known fact that the white maize variety, which we consider to be "pap", is only produced in surplus in a limited number of countries. Main producers of white maize are Zambia, Mexico, the United States of America and Malawi.

Much like South Africa, however, all these countries have their own challenges which may ultimately influence their ability to supply the quantities of white maize required by markets. For instance, Zambia which has been one of South Africa's main suppliers this year is also experiencing production-limiting dry conditions.

Furthermore, following the depreciation of the kwacha against major currencies and escalating domestic food prices, the Zambian government is reportedly considering imposing maize export bans.

With respect to other leading white maize producers such the United States, complexities regarding the South African registration of their GMO varieties have limited the ability of importers to source from that market.

Factor 3: The capacity of local transport infrastructure is questionable

Maize imports are projected to increase by 212 percent in the next season should the worst case drought scenario prevail. These additional imports would place added pressure on South Africa's already strained port and road infrastructure. Not only would a larger volume of imports mean increased frequency of ships to South African ports, but the number of trucks transporting maize from the ports would also increase.

With the deterioration of rail infrastructure, more than 75 percent of South Africa's maize is transported by road. In addition, there have been concerns in the industry that the depth of South Africa's ports might not be able to accommodate bigger ships.

The factors raised should illustrate that the process of bringing pap onto one's plate is complex. This process is made even more complex by the need to ensure that food remains affordable.

The economics of pap and the importing thereof are anything but straightforward. While it is recognised that there can be no easy solutions to the challenges raised, it is important that policy-makers consider them seriously with a view to mitigating the likely negative impacts as far possible and while time still allows.

It is never a good idea for a country to be reliant on imports for its staple food crops but Grain SA's scenarios tell us that South Africa may in-fact be left with no other option. Given this reality, a thorough understanding of pap economics is a must.

Nkosi is a senior economist at Agri SA and Sihlobo is an economist at Grain SA. They write in their own capacity. follow them @MissThabiNkosi or @WandileSihlobo.

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