High food prices – who is to blame?

The current high food prices are largely caused by external factors. However government is also to blame – they failed to protect and develop commercial agriculture and only focused on transformation.

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The current high food prices are largely caused by external factors. However government is also to blame – they failed to protect and develop commercial agriculture and only focused on transformation.

Inflation reached its highest level In four years in March 2008. Consumer prices increased 10,5%, compared to March 2007 – the first time since March 2003 that inflation reached double figures. Food inflation has been higher than total inflation since November 2005, reaching 15,3% in March. This is still lower than the peak reached in October 2002, mainly caused by the weakening SA

Current higher food prices aren’t caused by a weaker rand but mainly by long-term external factors. The drivers of higher international food prices are well known: sharp increases in food demand, especially for protein-food, in emerging countries; higher fuel prices; drought in key grain-producing countries and the diversion of some grains to biofuel production.

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Higher food prices have a huge impact on poor people. UN World Food Programme executive director Josette Sheeran is quoted in the Washington Post as saying that more than 100 million people are being driven deeper into poverty by a “silent tsunami” of rising food prices. British prime minister Gordon Brown regards the food crisis as a greater threat to world stability than the current financial turmoil. In Haiti, riots over food prices resulted in the dismissal of prime minister Jacques-Edouard Alexis.

The South African situation
In SA, Cosatu protested against the high food prices, emphasising that poor people suffer the most from increases, which they blame on excessive salaries for CEOs and collusion between companies.
While these factors probably contribute to higher food prices in SA, other factors impact more. Cosatu’s proposed solution of price control and nationalisation is unfortunately doomed.

The high price of imported food and farm inputs is a primary reason for the high food prices. The inputs farmers buy are all priced on an import parity basis. The price of Sasol fuel is calculated on the basis of the Brent crude oil price. As a commercial enterprise, can argue that they can get import parity prices for the fuel they produce and thus don’t have to sell it at below parity prices in South Africa. same is true for phosphate fertiliser and many other products. Government should not allow a company such as Sasol to use import parity pricing.

It has become a net importer of food. If farmers produce more than the country needs, they export the surplus. price received for exports, export parity, is always lower than the cost of importing the product (import parity).

For example, on 8 April 2008 the import parity price of wheat was R4 121/t, while export parity was R2 943/t. If we produced enough wheat for our own use the wheat price would have been nearer to 900 and not the actual R3 910.A recent Financial Times article blames Asian countries’ failure to support their agriculture for the slowdown in their farm productivity growth. While developed countries support their farmers, developing countries support city dwellers at the expense of rural people.

This is as true in as elsewhere. Government views the agricultural sector as unimportant. Someone near to the ANC leaders, or more correctly to the pre-Polokwane leaders, once remarked that agriculture is smaller than the taxi industry and therefore not important to government! Anyone who believes that doesn’t understand agriculture’s effect on upstream and downstream industries.

Years of neglecting commercial agriculture, and failing to protect it against unfair competition from highly subsidised imports, has permanently damaged agricultural production and infrastructure. Government’s agricultural research and development focuses on small-scale emerging agriculture and extension service now only serves beginner farmers. patently ignores the fact that the main beneficiaries of agricultural research and development are the poor, who spend a large share of their total budget on food.

What can government do
For many years government followed a food security policy based on cheap imports. Pleas by local industries for protection against unfair competition were ignored. Now, imports are expensive, if available. agriculture has the potential to produce enough food for our own use, and become a large exporter of food too. While commercial farmers have the necessary skill, they will need government’s support to increase production and gain a share in export markets.

They will also need government’s moral and political support. Farmers need security of landownership, personal safety and recognition for the important role they play in rural areas. They do not need threats about so-called farm evictions and Zimbabwean-style land grabs if they do not sell enough land to the new farmers. The development of a globally competitive and sustainable local agriculture is one of the goals of the sectoral plan for agriculture. It’s high time to spend some energy and money on this goal, even if it means more politically corrects goals are put on the back burner for a time.

Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and do not reflect MPO policy. |fw