Downgrade likened to a slow death for SA’s grain farmers
SOUTH Africa’s droughtstricken farmers could come under extra pressure after the currency weakened in the fallout from the credit ratings downgrade to junk status, which could also push up food prices, industry experts said.
The price of July contract white maize rose to R2.008 yesterday from R1.700 on March 27 when President Jacob Zuma recalled former finance minister Pravin Gordhan from an investor roadshow before firing him.
The rand has dropped more than 10 percent since then. Rand weakness will also squeeze farmers who have borrowed following the 2015 drought, the region’s worst on record.
Farmers’ debts looked to have risen more than 10 percent to R160 billion yearly in 2016, experts say.
“We have already seen a response to the weaker exchange rate with prices ticking up,” FNB senior agricultural economist Paul Makube said.
“If the exchange rate blows out on us then definitely there will be a further increase in prices,” he said.
Rand fall forecast The rand is forecast to further depreciate to R14 by March next year, according to Reuters data, compared with R13.6 yesterday. Grain prices usually increase by 0.5 percent for every percentage point drop against the dollar, said Wandile Sihlobo, head of economic and agricultural intelligence.
“Whatever increase you see on the grain prices, half of that gets to be transferred to staple foods such as maize meal and samp,” said Sihlobo.
Samp is dried corn kernels, a staple for more than 20 percent of the population living below the food poverty line.
But this year’s bumper maize crop, up 84 percent from last year, could cushion price increases.
“Food inflation will continue to come down over the next few months but this could change by early next year,” said Sihlobo.
Input costs such as fertilisers and agrochemicals, which are highly exposed to the exchange rate and make up 60 percent of grain production costs, will also rise after the downgrade, denting farmers’ profit margins.
“The downgrading is like a slow death. You are not going to see it immediately but over time it kills you and makes you weaker and less competitive,” Grain SA chief executive Jannie de Villiers said.