Food prices may spike as drought takes toll
Disappointing maize crop casts shadow over optimism at falling fuel prices
● While South Africans will welcome lower fuel prices after their record run this year, low rainfall in some of SA’s key crop-producing areas such as the North West has raised the prospect of higher food inflation going into the new year and, in turn, some downside risks to growth.
Planting season in the western Free State and the North West, where two-thirds of the country’s white maize production is concentrated, has been badly impacted by low rainfall; less than 20% of the hoped-for 2.4-million ha was actually planted.
Rainfall predictions for next year’s harvest are not promising, posing the risk of higher inflation and reduced economic growth, said Wandile Sihlobo, agricultural economist at the Agricultural Business Chamber in SA (Agbiz).
“I’m not being alarmist. We’re not running out of food. We have sufficient supplies to carry us through … but it is just concerning,” he said.
The South African Weather Service expects higher temperatures to continue into late summer and early autumn.
SA consumes around 10.8-million tons of maize a year, with 3.3-million tons in reserves. The country will need to produce 8.5million tons to meet the expected demand by April.
Sihlobo said a clearer picture of the maize crop would be available at the end of January when all planting for the current season is done, and full assessments of how much has been planted can be made.
The planting season in white-maize growing areas is from the middle of November to mid-December, although farmers can plant as late as January 4 in the North West.
White maize is the staple diet in SA, while yellow maize, mainly grown in Mpumalanga, KwaZulu-Natal and the Eastern Cape, is used as animal feed.
In these areas there have been better rainfall patterns during the main wet season between November and March.
White-maize prices have gained 37% over the past 12 months and, should production fall below expectations this year, prices are expected to further increase.
Food prices have been muted for much of this year and have helped to keep the overall inflation number within the Reserve Bank’s target range of between 3% and 6%.
For the year, South African food inflation came in at about 3.4% and Agbiz expects that figure to rise to 4.9%, assuming a normal harvesting period in 2019.
Adverse weather conditions mean that Agbiz might revise its food inflation forecast, Sihlobo said.
It had been forecast that SA would pro-
We’re not running out of food. We have sufficient supplies to carry us through … but it is just concerning.
Wandile Sihlobo
Agricultural Business Chamber economist
duce 12.2-million tons in the 2018-19 season, down from 12.9-million tons harvested the previous period.
The deepest drought in nearly a century, which occurred in 2015-16, resulted in a maize harvest of only 7.7-million tons. Food inflation that year came in at 10.5%.
With growth at anaemic levels, SA can ill afford to have one of its largest sectors and biggest employers slow down into next year. The agricultural sector grew by 6.5% in the third quarter of this year and was one of the leading reasons the country climbed out of its second recession in a decade. Growth in the sector was second only to manufacturing.
The National Treasury estimates SA’s economic growth for 2019 at 1.7%, with the Reserve Bank more optimistic at 1.9%, and the World Bank conservative at 1.3%.
Food inflation concerns appear just as fuel-price hikes that were the main pressure on SA’s overall inflation start to ease.
After surging to a record high in October, because of a rising oil price and weaker rand, fuel prices are expected to fall to their lowest levels since March on Wednesday.
Petrol will fall by R1.23 a litre in Gauteng to R14.0, while diesel will decline by R1.53 to R13.13.
The Reserve Bank’s monetary policy committee meets next month after raising rates by 25 basis points at its last meeting in November.
The Bank has stated that further rate hikes were on the table should inflation continue to rise in coming quarters, with the lender expecting the repo rate (the rate at which it lends money to commercial banks) to touch 7.50% by 2020.