IMPACT OF HIGH FOOD PRICES
ON PRODUCERS AND REQUIRED
INTERVENTIONS
John Purchase
Agricultural Business Chamber (ABC)
Gauteng Food Summit
10 & 11 July 2008
Introduction
 Causes of high food prices
 South African situation
 Competitiveness, Profitability and
Confidence of Industry
 Investment situation and climate
 Interventions
 Conclusion
Causes of high food prices
• High agricultural commodity prices
• Global macro-economic factors
- Strong economic growth, stimulating demand
- Depreciation of the US dollar
- Increased speculative transactions in markets
• Dynamics of the specific agricultural
commodities
• Changes in government policies
Rising Commodity Prices
(January 1990 = 100)
500
450
400
350
300
250
200
150
100
50
0
Oil
Metals
All Commodities
Food
Oil Prices (US$/Barrel)
International fertilizer prices
Rand per ton
7000
6000
5000
4000
3000
2000
1000
Feb
2006
Apr
Jun
Aug
Ammonium
Okt
Dec
DAP
Feb
2007
Apr
Jun
Potasium
Aug
Okt
Des
Urea
Feb
2008
Mean Real GDP Growth (%)
12
10
8
6
4
2
0
World
Developed
1975-90
Developing
1990-2000
China
2000-07
India
2009-17
USA
70
350
60
300
50
250
40
200
30
150
20
100
10
50
0
87/88
91/92
End Stocks
95/96
99/00
U.S. HRW Price
03/04
07/08
0
$/ton FOB
Million tons
End stocks and the Price of Wheat
the past 10 years
USA Maize production, exports
and ethanol use (MMT)
350
300
250
200
150
100
50
0
1995
1996
1997
Exports
1998
1999
2000
2001
Maize for ethanol
2002
2003
2004
2005
Maize Production
2006
2007
Soya production, consumption
and end stocks (MMT)
250
200
150
100
50
0
97/98
98/99
99/00
Production
00/01
01/02
02/03
Consumption
03/04
04/05
05/06
End stocks
06/07
07/08
Vegetable oil imports by China (MMT)
180
160
Million ton
140
120
100
80
60
40
20
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
South African situation
• Declining maize production area
• But significant maize yield increases
(productivity increases)
• Maize Crop of ~12,0 MMT has helped to
stabilize prices – need
• Extensive wheat and soya meal imports
still a major concern
Maize area planted in South Africa
Million hectares
1923/24 to 2006/07
5
4
3
2
1
0
1923/24 1933/34 1943/44 1953/54 1963/64 1973/74 1983/84 1993/94 2003/04
PRODUCTION YEARS
5
Ton/ha
Mean yield of maize:1923/24 to 2006/07
4
3
2
1
0
1923/24 1933/34 1943/44 1953/54 1963/64 1973/74 1983/84 1993/94 2003/04
PRODUCTION YEARS
PRYSE VAN GEELMIELIES GELEWER IN RANDFONTEIN
PRICES OF YELLOW MAIZE DELIVERED IN RANDFONTEIN
Januarie/January 2006 - Junie/June 2008
3900
01/05/06
01/05/07 - 30/04/07
30/04/08
3700
3500
3300
3100
Invoerpariteit/Import parity ARG YM
2900
2700
Invoerpariteit/Import parity VSA YM
2300
2100
1900
1700
SAFEX
1500
1300
1100
900
Uitvoerpariteit/Export VSA YM
700
500
300
3-Jan-06
3-Feb-06
3-Mar-06
3-Apr-06
3-May-06
3-Jun-06
3-Jul-06
3-Aug-06
3-Sep-06
3-Oct-06
3-Nov-06
3-Dec-06
3-Jan-07
3-Feb-07
3-Mar-07
3-Apr-07
3-May-07
3-Jun-07
3-Jul-07
3-Aug-07
3-Sep-07
3-Oct-07
3-Nov-07
3-Dec-07
3-Jan-08
3-Feb-08
3-Mar-08
3-Apr-08
3-May-08
3-Jun-08
3-Jul-08
R/ton
2500
Datum/Date
PRYSE VAN VSA WITMIELIES GELEWER IN RANDFONTEIN
PRICES OF USA WHITE MAIZE DELIVERED IN RANDFONTEIN
Mei/May 2005 - Junie/June 2008
01/05/06
01/05/07 - 30/04/07
30/04/08
4,300.00
3,900.00
Invoerpariteit / Import Parity
3,500.00
2,700.00
SAFEX
2,300.00
1,900.00
1,500.00
1,100.00
Uitvoerpariteit / Export Parity
700.00
Datum/Date
3-Jun-08
3-Jul-08
3-Apr-08
3-May-08
3-Feb-08
3-Mar-08
3-Jan-08
3-Nov-07
3-Dec-07
3-Sep-07
3-Oct-07
3-Aug-07
3-Jun-07
3-Jul-07
3-Apr-07
3-May-07
3-Feb-07
3-Mar-07
3-Jan-07
3-Nov-06
3-Dec-06
3-Sep-06
3-Oct-06
3-Aug-06
3-Jun-06
3-Jul-06
3-Apr-06
3-May-06
3-Feb-06
3-Mar-06
300.00
3-Jan-06
Rand/ton
3,100.00
Competitiveness, Profitability
and Confidence of industry
 Increased competitiveness: Requires
policies for adoption of quality and
productivity improvements in order to exploit
export potential, but also to maintain and
grow local markets
Competitiveness : 1960 - 2007
Th e A G RIB US INE S S C OMPE TITIVE NE S S S TA TUS in dex
(A C S )
2.50
0.60
Deregulation
(from co-ops to
companies
Weak Rand
New markets
0.50
2.00
0.40
1.50
0.30
Drought
Political
Uncertainty
0.20
1.00
Strong
Rand
Drop in
Business
confidence
0.10
1990
0.50
(0.10)
(0.20)
-
(0.50)
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Profitability of Sector
Gross and Nett Farming Income
Gross Farming Income
Nett Farming Income
90,000
Rand X1 000 000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07
Seasons
Agricultural Export and Import
Volumes: 1998 - 2006
10000000
9000000
8000000
Tonnes
7000000
6000000
5000000
4000000
3000000
2000000
1000000
0
1998
1999
2000
2001
2002
2003
2004
2005
2006
Year
Agric Export Volumes
Agric Import volumes
2007
Agricultural trade balance:
1998 - 2006
35 000 000
30 000 000
25 000 000
R 000
20 000 000
15 000 000
10 000 000
5 000 000
1998
1999
2000
2001
2002
2003
2004
2005
2006
- 5 000 000
Year
Agric Trade balance
Agric Exports
Agric Imports
2007
Investment situation and
climate
• Gross fixed capital formation has
remained stagnant
•Capital stock in Agriculture has declined
over the past decade, but showing signs
of a turnaround due to improved
profitability.
Gross fixed capital formation:
Agriculture, forestry and fishing:
1994-2006
9000
8000
7000
6000
R million
5000
4000
3000
2000
1000
0
1994
1995
1996
1997
1998
1999
Current prices
2000
2001
2002
Constant 2000 prices
2003
2004
2005
2006
Capital Stock in Agriculture
(Constant 2000 prices): 1995 - 2007
82000
81000
80000
R Million
79000
78000
77000
76000
75000
74000
1996
1997
1998
1999
2000
2001
2002
Year
2003
2004
2005
2006
2007
Constraints and Challenges to
Investment in Agribusiness
 Limited global competitiveness and profitability (High input
costs, especially derived from energy costs!)
 Skewed participation and access
 Not sufficiently adequate support and delivery systems
 Often poor and unsustainable management of natural
resources
 Governance and entrepreneurship – public and private
 Knowledge and innovation for productivity/new products
 International cooperation, e.g. trade agreements, etc.
 Infrastructure
 Safety and security
 Traditionally, low investor confidence, but changing
Trends in Agribusiness
Confidence : 2001 - 2007
Th e A G RIB US INE S S C OMPE TITIVE NE S S S TA TUS in dex
Trends in the confidence(A
ofCagribusinesses
in South Africa
S)
2.50
0.60
40.00%
Devaluation of the
Rand
Persistent
drought
0.50
Deregulation
(from co-ops to
companies
Weak Rand
Increase New
in themarkets
Sharp increased in the
price of major
0.40commodities
2.00
Positive
economic
growth
value of the Rand
20.00%
1.50
0.30
1.00
% Change
0.20
0.00%
Strength of the Rand
Drought
Political
Uncertainty
Strong
Low product prices
Rand
Drop in
Unfavorable agricultural
Business
conditions
confidence
0.10
1st 2nd 3rd 4th
2001
1990
1991
1st 2nd 3rd 4th
1992
2002
1993
1994
1st 2nd 3rd 4th
1995
2003
1996
1997
1st 2nd 3rd 4th
1998
2004
1999
1st 2nd 3rd 4th
2000
2005
2001
2002
1st 2nd 3rd 4th
2003
2006
2004
2005
Drought
1st 2nd 3rd
2007
0.50
(0.10)
-20.00%
-
(0.20)
Improvement in
general
agricultural
conditions
Lower interest
rates
(0.50)
Positive economic
growth
-40.00%
Quarters
Increased in
the prices of
major
commodities
Short Term Interventions
• Agree wholeheartedly that Government
needs to support the vulnerable and
poorest of the poor, e.g. food stamps,
starter packs, feeding schemes, etc.
Medium and long term
interventions
• Government to create an enabling (market)
policy environment for entrepreneurs to
exploit opportunity
• Investment in general infrastructure in rural
areas, but also in agricultural infrastructure
• Technology development and transfer needs
to be improved through investment and
bringing top students into this environment
Medium and long term
interventions
 Major investment in skills development
 Improve access to capital and facilitate
financing of agricultural production
 Establish improved information systems,
with improved communication
 Ensure sustainable resource management
 Improved institutional support services by
both public and private sector
Conclusion
 Food price crisis is a global phenomenon
and complex

Holds many threats to society, especially
to the poorest of the poor and most
vulnerable of society

Opportunities are however certainly
increasing across whole industry
Conclusion
•
Global economy changing rapidly
•
Global food and agriculture changing
rapidly
•
Food crisis will challenge conventional
thinking across whole value chains
•
Sustainability: Less intensive energy
systems with Conservation Agriculture
Conclusion
Create confidence,
competitiveness and
profitability in the sector!
THANK YOU