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January 17, 2011

South Africa: After record harvest, too much maize on the market

After a record maize harvest, a bid by South African farmers to form a pool to export the surplus – enough to feed its food insecure neighbours, Swaziland and Lesotho, for several years – has raised questions about the future of the crop and the manufacture of biofuel.

The country’s Competition Commission rejected the bid on 11 January. "We wanted to start a debate in the country. Surpluses of this magnitude are unusual; food prices are going up globally. We have suggested the farmers consider storing the surplus,” the Commission's Oupa Bodipe said.

“In the long run they should look at growing maize more for animal feed, or at alternative crops such as sunflower for oil." He said the surplus should challenge the government and the agriculture sector to broaden their options and suggested the farmers consider using the surplus to manufacture biofuel.

South Africa has produced surpluses for several years. The Competition Commission said the farmers' plan to take the latest surplus off the market would raise the price of maize-meal – a staple food in South Africa – and make animal feed more expensive.

Commercial farmers harvested more than 12.8 million tonnes of maize in the 2009/10 season – the biggest crop in three decades – but local annual consumption of between eight million tonnes and nine million tonnes will leave a surplus of about four million tonnes. Lesotho consumes about 344,000 tonnes per year and Swaziland 140,000 tonnes.

The Competition Commission acknowledged that "The existence of the surplus may well result in lower-than-expected returns to farmers, and financial difficulties for some. Ultimately, this may negatively affect the country's productive capacity of maize in the long run."

Johan Willemse, a professor of agricultural economics at the University of the Free State, said the Competition Commission did what it was mandated to do - take steps to keep food prices down - but it had brought the focus on the government to firm up its commitment to agriculture.

"With the inability to find other markets outside South Africa, the long-term effect will be that farmers are going to plant less, as dictated by the domestic market," he noted.

Poor agricultural infrastructure also limited access to domestic and regional markets. "It is ironical, when we have such a massive surplus, that poor communities in poor provinces such as the Eastern Cape do not have access to cheap maize because of the poor roads - in fact, Eastern Cape does not even have a maize-milling plant," Willemse said.

The existence of the surplus may well result in lower-than-expected returns to farmers, and financial difficulties for some.

Investment in better crop varieties over the years had doubled yields per hectare and maize production in South Africa had "saturated", said John Purchase, chief executive officer of the Agricultural Business Chamber.

Maize prices had remained consistently low but there was scope for investment to broaden local markets. "Maize within South Africa was still cheaper than globally, even during the hike in 2008,” he noted.

“Unfortunately, it has not meant cheaper maize-meal – consumed by most of our people – because of added costs such as fuel and energy, which have remained high, but maize-meal prices are still cheaper in South Africa, compared to the rest of Africa," Purchase said.

Maize accounts for 70 percent of the country's grain production and covers 60 percent of its cropping area. Purchase and other representatives of the agriculture sector are debating how to deal with the future of maize - the backbone of the sector.

According to the International Food Policy research Institute (IFPRI), South Africa produces half of Southern Africa's maize, the main staple food in the region.

But as maize harvests have improved in other Southern African countries like Malawi and Zambia, which have also reaped surpluses, demand for the staple has shrunk. Besides, South Africa mainly produces genetically modified maize, which has few takers.

Maize exports have also been hit by the strong rand, which has dropped from trading at about US$8 at the beginning of 2010 to about $6.8 at present.

Purchase said they were considering growing maize for markets outside the continent. The UN Food and Agriculture Organization (FAO) noted in its latest update that the Republic of Korea was the top importer of South African maize in 2010.

Kobus Laubscher, head of Grain SA, the agricultural body that applied to the Competition Commission, said they appreciated the debate on the future of maize farming getting underway. Lower prices and the inability to sell the surplus had been discouraging some farmers.

FAO said preliminary estimates indicated that the area planted to maize in South Africa was likely to decline by about 10 percent compared to 2010 levels.

"We urge the government to come up with alternatives, including a biofuel strategy which calls for the mandatory blending of biofuel [with retail petrol or diesel]," Laubscher said.

South Africa does not allow staple grains such as maize to be used for the production of biofuel, but has announced ratios for blending biofuel with commercially sold fossil-fuel based petrol and diesel.

This is not mandatory as it is in Malawi, which has been using ethanol-blended fuel since the energy crisis in the early 1970s.

South Africa's agriculture minister, Tina Joemat-Pettersson, recently said the government should review its biofuel policy.

The Commission was more optimistic. "The surplus in itself is not indicative of an industry in decline. Surpluses and deficits arise due to changing market circumstances, and markets adjust accordingly. There is no evidence that this industry cannot survive such an adjustment."

Ronald Ramabulana, chief executive officer of the National Agricultural Marketing Council, agreed, saying the situation was temporary. "With farmers planting less, the supply in the market will reduce and the situation will correct itself."

Abdolreza Abbassian, secretary of the Intergovernmental Group on Grains at FAO, said he was concerned about the impact of the Commission's decision on the farmers, and that it could disrupt maize supplies in the long run. "But the commission must have done its own cost benefits analysis for the country."

The farmers' desire to form an export pool was prompted by two reasons: "One was to ring-fence the four million [tonne surplus], hoping it would then probably push prices to a level which could help them," said Willemse.

The other reason was that it was beyond any farmer's capacity to export such a quantity on his own. "It now time for the government to seriously engage with the farmers," Purchase suggested.

In the past few days agriculture minister Joemat-Pettersson has been travelling to various provinces to meet with commercial farmers.


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