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May 04, 2008

South Africa expects good harvests

While rocketing food prices are causing concern globally, South Africans can expect some relief as local farmers boost production.

Nico Hawkins, the manager of industry services at commecrical farmers' union Grain SA, said maize harvesting had already started and "the indications are that there is a relatively good crop out there." He said the crop estimates committee put the crop at 11 million tons, 55 percent up from last year's 7.1 million tons, when drought and lower prices produced only a modest crop.

Ernst Janovsky, Absa's (bank) general manager of agricultural business, put the season's maize crop at 10 million tons, with consumption at only 8 million tons.

The outlook is also good for other crops. Hawkins said farmers were starting to plant wheat "and first intentions are to plant 750 000ha - an 18.7 percent increase on last year."But he added that the rise was off a low base: "Last year we had the lowest planting in 40 years, because of drought and low prices."

The wheat planting season was also under way in Argentina and Australia, which last year was seriously affected by drought, according to Hawkins. He said expectations of improved supply as the year progressed were reflected in the difference between international spot wheat prices and prices for December. "Wheat is presently R3 815 ($500) a ton, while the December price is
R3 530," said Hawkins.

According to Hawkins, other crops expected to do well include sunflower seeds, at 786 000 tons, more than double last year's 300 000 tons; and soya beans, at 302 000 tons from 205 000 tons last year. He expected farmers to have a relatively profitable year, with larger crops taking some of the pressure off food prices.

But the relief will be limited. Hawkins said agricultural input costs were rising sharply: "Fertiliser prices on average are 86 percent higher than last year, while diesel is 60 percent higher."

Standard Bank's economic unit recently described the "exorbitant input price inflation" faced by farmers. It said average prices of fertilisers and feedstock (yellow maize) rose 27 percent in the 12 months to February, while the average diesel price increased by 43 percent in the same period.

Standard Bank said global food prices climbed an average of 83 percent over the last three years, with a "sharp increase" in the past six months.

Janovsky said that because South Africa had an open-door policy to agricultural products, prices were largely determined on international markets. "In the case of wheat, South Africa is a net importer, so wheat prices are determined 100 percent by international prices," he said. "In the case of maize, South Africa can be a net importer or exporter, so the prices range between import parity and export parity."

Standard Bank identified a speculative element in the run-up of global food prices. It said that after the recent turmoil in financial markets, "hedge fund speculative investors moved out of financial and into other markets, one of which was that of agrarian raw materials such as rice, wheat sugar and palm oil".

The bank said the diversion of land to alternative fuel sources was also responsible.

"In Brazil, 120 million hectares have been earmarked for crops intended for biofuels," it said. "And in Africa 400 million hectares of land will be put under biofuel crops in the next few years."

Business Report

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