Higher food prices and harder times may be on the way for SA – thanks to El Niño

 ·12 Aug 2018

Weather forecasts indicate more than a 50% chance of another El Nino event affecting South Africa in the coming months.

El Nino is an irregular weather event which is caused by the warming of sea-surface temperatures in the equatorial Pacific Ocean which influences atmospheric circulation, and consequently rainfall and temperature in specific areas around the world.

Speaking to BusinessTech, agricultural economist at Absa, Karabo Takadi, said that the occurrence may start in late 2018 and will likely continue into autumn of 2019.

“If the event materialises, then there is an increased probability for spring and early summer rainfall over the summer rainfall areas,” she said.

“There is however a very significant increase in the probability for below average rainfall and above average temperatures for the November 2018 to February 2019 period.

“Summer crops, such as white maize which is relevant to the consumer, are planted during November. To realize a sufficient crop to meet our domestic demand for white maize flour sufficient rainfall during November and February are critical.

“It is important to note that white maize flour is an inexpensive food staple for the majority of our population,” she added.

Impact on agricultural production

According to Takadi, there is currently a large maize surplus from the previous seasons due to favourable weather conditions. She noted that this has helped keep maize prices at low levels and lessened food inflation during 2018.

“The lower prices for especially grain and oilseeds have made a big contribution to lower food prices in 2018,” she said.

“South African grain is currently well supplied, and sufficient production is anticipated during the new crop season.

“The maize industry has large stocks in silos and exports were insufficient to lower these stock levels. A lower grain crop in the next season due to weather anomalies (El-Nino events) may help clear all the excess stocks, and balance the grains and oilseeds supply and demand.”

She added that this is important to support the sustainability of maize production, and that maize prices are currently too low due to the surplus.

“However, for red meat, pork, poultry and dairy industries, the low maize prices support herd rebuilding and the profitability of the livestock sectors.

“The cattle herd is depleted and the lack of sufficient weaner cattle during herd rebuilding is pushing up the price of beef and mutton. The imports of poultry products keep a lid on prices for white meat and pork is also at more affordable price levels than beef and mutton.

“Plentiful grain production also keep feed costs low, which is an important input in producing beef, mutton, poultry and dairy products. Lower production means the cost to feed becomes more expensive, and leads to more rand spend for maize to produce a kilogram of meat or milk.

“The future increase in feed prices requires higher milk prices for 2019 to ensure sustainable production,” she said.

Cape Town

Takadi noted that El Nino is known to improve rainfall conditions for the Western Cape and the current situation may be short-lived for one season before returning to below average rainfall in the next years.

“Winter crops like wheat, canola and barley, horticultural, viticulture crops and some major vegetables are mostly grown in the Western Cape and have suffered as the Western Cape has been experiencing dry conditions over the past three years, with last year proving to be the driest,” she added.

Food inflation

If the El Nino event realises, food prices in general may increase in the coming year, said Takadi.

“Periods of high food inflation often bring about concerns over its impact on the poor, especially following recent increases in other costs like the increases in VAT and energy costs.

“The cattle and sheep industry are currently characterized by low supply, strong demand and shrinking production areas, which means that consumers have had to dig deep for that peace of a lamb chop or beef steak,” she said.

“Red meat prices are as a result at very high levels at retail stores with the exception of the white meat. Pork prices are still recovering from the Listeriosis outbreak in the ready to eat meat market which saw prices plummet over the past months, in reaction to lack of demand and plentiful supplies.”

She added that an  El Nino event would lead to the temporary declines in red meat prices as drier conditions in the summer producing regions would lead to yet another herd liquidation of already scarce herds and flocks.

“More cattle numbers will reach the market in the short term thereby providing underlying pressure to retail beef prices only in the short term. As a result of increased supplies in the short term, the herd rebuilding process would be extended, leading to long term escalations in prices,” she said.

Your wallet?

According to Takadi,  an El Nino event will hurt the poorest of the poor in the long term, eating more from his disposable income as food inflation may start to increase in the coming year.

“Prepare to pay more for red meat prices moving forward but note also that we do not expect that the price of white maize flour will increase. This will assist the poor,” she said.

“There are forward and backward linkages between agriculture and the rest of the economy.

“The multiplier effect will therefore be large if agriculture suffers,” she said.

Read: Food and grocery price increases in South Africa: 2017 vs 2018

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