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December 31, 2008

South African bumper harvest set to ease food costs

by Ethel Hazelhurst

Despite a late start to the planting season, South Africa's farmers will produce a food surplus, which should result in flat or lower food prices next year.

Ernst Janovsky, the general manager of agribusiness at Absa, said improved supplies would end the surge in food prices, which had contributed to soaring inflation over the past year.

Combined with lower fuel prices - as the international oil price plunged to lower levels - and falling interest rates, the improved outlook for food should help restore consumer confidence. Consumer spending shrank marginally in the third quarter, depressing overall growth in the gross domestic product.

Janovsky said farmers should also benefit, despite lower prices. "They can make up for lower prices by selling higher volumes." And he expected them to make an improved contribution to the economy, resulting in a win-win situation for everyone.

Janovsky said a lack of rain had delayed planting from October to late last month, but he predicted the bulk of the maize, sunflower and soya bean crops would be planted by the end of this week. He said the season was "now moving towards a La Nina" - cooler wet weather, which is good for crops.

Johan Willemse, an agricultural economist at the University of the Free State, said farmers had already reduced their original maize planting plans to avoid creating too large a surplus.

They were currently planting 2.5 million hectares, which would produce 10 million tons of maize. He said 2 million tons, left over from last season, would be exported - 90 percent of it to neighbouring countries.

Janovsky said the bumper crops would cut prices from import-parity to export-parity levels. "In the case of maize, import parity is R2 700 a ton and export parity R1 500."

Figures from Statistics SA show food producer prices at the agricultural level have been falling since August, when agricultural food prices started to drop. However, food prices at the manufacturing level remained high because of historic input costs.

Over the 12 months to October, domestic producer food prices fell 10.4 percent at the agricultural level and, in the month of October, 2.4 percent. However, at the manufacturing level producer food prices rose 15.6 percent over 12 months and were virtually flat in October.

Consumer food inflation was 17.2 percent over the 12 months to October and rose 1.1 percent in the month.

But Willemse said the impact of the lower producer prices should feed through to consumer prices with a lag of up to six months. He predicted that consumer food inflation would fall to zero in the first half of next year.

Food prices have started to subside globally - The Economist's food price index has fallen 65 percent from a peak at the end of July.

The UN's Food and Agricultural Organization said in a report last month: "Prices for most agricultural commodities have dropped significantly… World grain prices have fallen by over 50 percent from their record highs earlier this year.

"International prices for other important foodstuff, such as vegetable oils, oil seeds or dairy products have also drifted downwards, even if they still remain above their longer-term trend levels.

"Rice is still expensive, but prices may follow the path for other foodstuff as the new crop comes on stream [and] export restrictions are relaxed."

Willemse said the lower prices were also linked to financial instability, which had reduced demand.

usiness Report

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