Global food prices have increased sharply, with the FAO food price index rising by 6% from June to July, the highest month-to-month increase since the boom period started in January 2008. Grain prices showed the highest increase. As in 2008, this was caused by a combination of fundamental factors on the demand side and shocks on the supply side.
The growth of the middle class, especially in developing countries, continued population growth and urbanisation have resulted in higher demand for especially protein food. This, as well as biofuel production, has increased the demand for grains and oilseeds.
Then there’s the drought in the US and uncertain climatic conditions in other countries. Globally, livestock farmers find it difficult to make ends meet with very high grain and low producer prices. And even higher world food prices are expected in the coming months. As in 2008, but possibly on a smaller scale, countries are already planning to limit exports to ensure local food availability.
Food prices on retail level in South Africa increased by 5,1% year-on-year to August 2012. The producer price index of food prices increased by 8,1% on farm level and by 9% on manufactured level. Retail prices will reflect these increases in a few months’ time. While higher food prices are good news for farmers, consumers, already hard hit by above-inflation increases in administered prices, will find it difficult to pay more for food.
It’s especially worrying for the low income group, who find it very difficult to put bread on the table as it is. However, if farmers don’t receive prices that fully cover their production costs and provide some return on their investment, they’ll cut down on production, with dire effects on local food supply.
Government has a key role to play on both the supply and demand side to provide food security for the consumer. On the supply side, farmers need support and protection. They need support in terms of government agricultural legislative and control services. Aspects such as plant and animal biosecurity and animal health issues should be addressed urgently. But government support of agriculture is currently very low compared to its support of other industries.
The SA motor industry, for example, became globally competitive with the help of an annual support of R17 billion. This industry employs 34 000 workers. Agriculture employs 650 000! With the same level of support, agricultural industries can also become globally competitive exporting industries. If we produce enough food for our local consumption and for export, local prices are close to export parity, which is much lower than import parity.
If the wheat industry’s request for tariff protection was granted, chances are that we may now have been able to produce enough wheat for our own use. Without government support, commercial agriculture won’t be able to produce enough food for our growing population.
While government support on the supply side can go a long way in ensuring local food self-sufficiency, it’s not enough to enable low income individuals to buy food. We spend a lot of money on various grants to needy, elderly people and mothers with children. And studies show that the money is mainly used to buy food.
However, as many farmers can tell you – and as we’ve mentioned in a previous column – a lot of the grant money is still being spent ‘unwisely’. The US uses a food stamp programme to ensure grants are used to buy food. We should do the same in this country.
Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and don’t reflect MPO policy.
Contact Dr Coetzee at [email protected]. Please state ‘Global farming’ in the subject line of your email.