World food prices expected to spike sharply

Higher global food prices can be expected in 2011, unless production of major food crops increases significantly, according to the latest Food Outlook released by the UN’s Food and Agriculture Organisation (FAO).

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Prices of most commodities are expected to go up sharply – to levels not seen since 2008 – predicted the report. World barley stocks should shrink by 35%, maize by 12% and wheat by 10%. Only rice reserves are expected to increase by 6%. And the FAO called on countries to step up production to replenish inventories or consumers will face higher food prices.

Meanwhile, the US Department of Agriculture (USDA’s) quarterly grain update for Brazil forecast that 12,6 million hectares of maize had been planted in 2010/11, and pegged production at 51 million tons – a 3% reduction in area planted and a 9% decrease in production from 2009/10.

However, the USDA raised its 2010/11 wheat production forecast to 5,45 million tons due to favourable weather conditions at harvest. Emvest Foods managing director Deon Scheepers said South Africa would have the same amount of hectares under production in 2010/11, although there may be a rotation out of maize and into soya and sunflower. He added that we could afford such a rotation because of our major maize surplus. “We have about 2,5 million hectares under maize this year, which is a slight reduction from last year, but soya is higher,” he said.

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He isn’t overly concerned about food prices in 2011. “The reality is there is currently a world surplus,” he said. We’ll eat into the surplus, he added, but even so, it’s not supply and demand issues that are currently making the big moves on food prices all over the world. “It’s more about factors that affect the dollar,” explained Scheepers. Lower stocks and a weaker dollar would push up international and hence domestic prices.

But, he said, food prices could go up 20% to 30% in world terms and still not reach 2008’s record high levels. Back then, he added, wheat prices stood at about US/bushel, while it’s currently at US/bushel (about R1 815/t). “So I don’t believe in all the doomsday stories. There’s enough stock around. We already have 50% of our entire consumption for the next season in silos. If we halve the current crop and stop all exports, we’ll still have sufficient stocks.”

According to Scheepers, current prices in South Africa are already trading up compared to June and July. “From our low points this season to December trading levels, maize prices have gone up almost 20%. Some fruit and vegetable prices are already trading up and we’ve seen a small increase in cooking oil. We haven’t seen much of a filter-through into maize meal yet, although it will probably come.”

The National Agricultural Marketing Council (NAMC’s) August Food Price Monitor showed that food inflation for July 2010 was 1,4% – 0,7% higher than June. This was the first time this year that food inflation was higher than that of the previous month. It was driven by the annual increases in vegetables (9,1%), sugar (4,9%), fish (3.8%), fruit (2,2%) and other foods (2,3%). Oils and fats and bread and grain prices fell from July 2009 to July 2010 by 4,2% and 3,4%, respectively.

In July, South Africa shared a low rate of food inflation with Australia (at 1,4%) and the US (0,9%), but performed better than the UK (3,3%), Botswana (6,8%), Zambia (4,1%), Turkey (5,5%) and Brazil (3,2%), according to the NAMC.National Chamber of Milling executive director Jannie de Villiers said South Africa is fortunate to be sitting with lower food inflation versus normal inflation.

“In the holiday months ahead, the retail sector won’t allow us to put through any food price increases. For the consumer it’s a good thing, but farmers depend on profitability,” he said.“It would help if our government encouraged farmers to grow more to keep prices at those levels. “I don’t think it’s a crisis yet, but the levels of food prices recorded by the FAO indicate we’re getting to the peaks that caused the chaos in 2007/08.”