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May 17, 2010

South African bumper harvest depresses Botswana cereal prices

by Mbongeni Mguni

A three-million tonne surplus in maize from South Africa has resulted in a depression of prices local farmers are able to obtain for their supplies to the Botswana Agricultural Marketing Board (BAMB), it has been learnt.

According to BAMB officials, South Africa is expecting 12.96 million metric tonnes of maize this year against local demand of nine million in that country. The region's agricultural giant also has carryover stock amounting to 1.9 million tonnes, further weighing on the already surfeit market.

With BAMB benchmarking its price on the South African maize price, what is music to the ears of local consumers has become a nightmare for local farmers.

While last year, BAMB was buying maize from farmers for about P70 per 50-kilogramme bag, this year the price has dropped to P60. The surplus also extends to sorghum, with this year's prices dropping to P55 from last year's P82.50.

BAMB Public Relations Officer, Boipuso Nyatshane, says market forces are pushing cereal prices down this year, to the detriment of farmers. "The prices are very low due to the surplus from the massive harvest in South Africa," she says.
"They have a lot of produce, three million tonnes of which has been set aside for the export market. We benchmark our prices on South Africa which also benchmarks against Chicago. If South Africa has excess produce, it means prices will be low. This in turn means the prices we can offer our farmers will be low."

Defending the rationale of benchmarking against South Africa, Nyatshane says as a net importer of food and a comparatively small market, Botswana cannot afford to set its own commodity prices.

"Many times farmers will complain that our prices are low, but if we sell higher than South Africa, the millers will go there," says Nyatshane. "We have to keep our prices competitive in relation to South Africa. Farmers now know how the system and the market work."

South African farmers are receiving between R1 050 and R1 200 (between R52 and R60 per bag) a tonne of maize while the BAMB is offering farmers P1 200 per tonne of maize, or P60 per 50-kilogramme bag. "We offer this slightly better price in order to support the local industry," Nyatshane says. "We cannot afford to go too much higher though. The difference with South Africa is also transport costs, which is in a way an incentive. We are trying to support the industry."

Botswana's sorghum price of P55 per bag is also higher than South Africa which generally decides on the price by trimming five percent off the maize price.

Nyatshane points out that sorghum receives special attention in terms of pricing because BAMB is eager to support it, the cereal being the staple food for most households in Botswana. She says without the support, farmers would be discouraged from planting sorghum and focus on maize instead, thus creating shortage of the staple cereal.

Nyatshane urges farmers to liaise with BAMB in various fora in order to avoid the effects of low prices. "We always give farmers market forecasts during the pre-harvest season so that they know what to plant," she says. "Many farmers have planted maize when South Africa has a surplus and when everyone does this, prices go down. "In addition, we encourage them to sign contracts with BAMB. For example, those holding contracts with us will this year receive P85 per bag of sorghum, which is the price we agreed before planting. With contracts, if the price goes higher than agreed, we will pay you the higher price. If it goes lower, we will still pay the agreed price."

Last year, maize and sorghum farmers signed contracts worth 18 000 tonnes with BAMB, a figure that has risen to 38 000 tonnes this year. This year's figure consists of 33 000 tonnes of sorghum, with maize bringing up the balance.
BAMB purchases commodities between April and September, selling these to millers and other offtakers throughout the year.


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