After experiencing terrible floods in January 2011, some parts of South Africa were further hit by unseasonal heavy rains in the second week of June 2011. The areas that were worst hit included the Western Cape and the Free State. This article seeks to explore the impact of these floods on food price inflation in South Africa.
Statistics South Africa (Stats SA) stipulated that the prices of vegetables inflated by 2.1 percent during the period April 2010 to April 2011. Against this background, consumers must anticipate a sudden price shock on horticultural commodities like vegetables whose damage by floods would directly and immediately affect the volume of supply on the market. There is no doubt that the recent floods had a significant impact on the vegetable growing communities around the Free State and the Western Cape and other provinces that received above normal rainfall.
The negative impact would emanate from infrastructure damage, disruption in the supply chain of agricultural products with respect to logistics and damage to the crops. One would predict a short term strain on the Price index of food, mainly horticultural products, for the months of June, July and maybe down to August. There should be a slight rise in wholesale price figures for these, which will also be anticipated to be reflected on the shelves at the retail level in a couple of months to come. The prices should however normalise to pre-flood levels within two to four months if production is resuscitated. This would happen if an increasing number of growers manage to shake off the dust and start to at least get back to normal operational capacity.
Statistics released by Stats SA further reveal that the April 2011 Consumer Price Index (CPI) showed that food and non alcoholic beverages inflation increased by 4.8 percent between April 2010 and April 2011. The previous Food Price Monitor of February 2011 reported that the food and non alcoholic beverages index increased by 3.1 percent in January 2011 compared to January 2010. The year on year food and non alcoholic beverages inflation increased to reach 3.6 percent in February 2011, five percent in March 2011 before slightly dropping to 4.8 percent in April 2011. In the face of the destruction of grain crops, mainly maize in the January and the recent floods in Bloemfontein, it is interesting to ironically note that though the destruction of grain by both the January and June floods is a cause for concern, the Stats SA reports that the prices of staple maize related food products deflated by 2.2 percent from April 2010 to April 2011.
Urban consumers paid 2.99 percent more for a super maize meal (5kg) and 7.49 percent less for special maize meal (5kg) in April 2011 than during April 2010 at the retail level. The annual increase of 4.8 percent in the food and non-alcoholic beverages index was largely driven by the annual increases in oils and fats (22.7 percent), meat (8.3 percent) and sugar (6.3 percent) and not necessarily maize. Even though the maize production levels for the 2011/2012 season will fall compared to the past three seasons as a result of the floods, the hitting of the maize crop by floods would not directly affect maize meal prices in South Africa as the country has large grain reserves with over 4 million metric tones reported to be available for export.
Thus, even though weather events have been playing havoc on world commodity markets since 2010, the only thing that could contribute to the increase in local maize related products in South Africa by more than in the recent past would not necessarily be the floods but international prices. Emanating from the deregulation of South Africa’s agricultural market in 1996, domestic prices of maize and other agricultural produce now tend to fluctuate within a range dictated by world prices and exchange rates. Local maize producers are finding support in much higher export levels where they can secure better export agreements on the back of a local maize price that has been, and still is trading well below export parity levels. This ultimately would gradually push local prices in the long term to try and match the international prices. For instance the May 2011 Quarterly Food Price Monitor report released by the National Agricultural Marketing Council highlights that the international price of yellow maize (US No.2, Yellow, U.S. Gulf) increased by 101.76 percent from April 2010 to April 2011.
During the same period, the price of domestic yellow maize increased by 42.71 and the domestic white maize price increased by 47.30 percent compared to April 2010. This depicts the pressure that international prices can have on domestic prices. The world grain market prices are still high due to high demand for bio-fuels and stock-feeds which will support high grain prices. Anticipated increases in local energy prices could also contribute to food price inflation in the coming months.
On a lighter note, a number of dams were filled to capacity as a result of the floods which one may argue to be a blessing in disguise as this is good news for irrigation agriculture. The Bloemhof dam was reported to be 101 percent full while South Africa’s largest storage dam, the Gariep in the Orange River, was 102 percent full. The Groendal dam near Uitenhage in the Eastern Cape was reported to be 118.8 percent full. This at least ensures good water reserves for the country.
- Takura Chamuka (Msc Econ, Bsc Econ) is a human and economic development consultant based in Johannesburg. This article may not be published or reproduced without the consent of the author.
References
1. Food Price Monitor: May 2011. National Agricultural Marketing Council. Pretoria.
2. www.statssa.gov.za
3. www.worldgrain.com/News/News%20Home/World%20Grain%20News/2011/6/FAO%20World%20food%20prices%20set%20to%20remain%20high.aspx