1 1 an update – movements in food prices prepared by the national agricultural marketing council...
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11
An update – movements in food prices
Prepared by the National Agricultural Marketing CouncilPresented by Dr John PurchaseCEO: ABC
Riding the rapids¹ ….
Are high prices here to stay? Are we at a new equilibrium/plateau? What are the implications of a new equilibrium
for investment, policy and food security? What are the obvious drivers – temporary and
permanent? What are the uncertainties
1. Pierre Wack is credited for inventing this title
3
International price trends Wave of food price inflation
is moving through global markets, leading to what some have termed a “silent Tsunami” of hunger.
Between January 2006 and May 2008: Maize and wheat grain
prices rose by 144.1 and 107.1 percent.
Soybean and rice prices increased by 114.7 and 218.4 percent, respectively.
100
200
300
400
500
600
700
800
900
1000
1100
JAN
06
FE
B 0
6
MA
R 0
6
AP
R 0
6
MA
Y 0
6
JUN
E 0
6
JULY
06
AU
G 0
6
SE
P 0
6
OC
T 0
6
NO
V 0
6
DE
C 0
6
Jan
07
Fe
b 07
Mar
07
Ap
r 07
May
07
Jun
e 07
JULY
07
AU
G 0
7
SE
P 0
7
OC
T 0
7
NO
V 0
7
DE
C 0
7
JAN
08
FE
B 0
8
MA
R 0
8
AP
R 0
8
MA
Y 0
8
US
$/t
on
US No.3 Yellow Maize (FOB) Gulf US No.2 Hard Red Winter (FOB) Gulf
US No.1 Soybeans (FOB) Gulf White Rice, Thai 100% B 2nd grade
4
International price trends
Meat prices from 2006 to Feb 08 Beef prices up 3% Chicken prices up 28% Pork prices up 6%
Dairy product prices from March 2007 and March 2008 Butter prices up 93.89% Cheddar cheese prices up
67.61% Skim milk powder prices up
17.05% Whole milk powder prices up
44.46%.
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
JAN
06
MA
R 0
6
MA
Y 0
6
JULY
06
SE
P 0
6
NO
V 0
6
Jan
07
Mar
07
May
07
JULY
07
SE
P 0
7
NO
V 0
7
JAN
08
US
$/t
on
USA, beef export, export unit value USA, Broiler cuts, export unit value
USA, pork, frozen product, export unit value
Source: UN-Food and Agricultural Organisation
5
Increases in food prices – causes High food prices caused by the increases in agricultural
commodity prices on the international market can be attributed, but are not necessarily restricted to
the lower availability of grains due to use for biofuel production and hence not available for other uses,
the increased demand for animals proteins that in turn requires grains as inputs for the production of more meat,
Uses of maize
6
Increases in food prices – causes High food prices caused by the increases in agricultural
commodity prices on the international market can be attributed, but are not necessarily restricted to
the lower availability of grains due to use for biofuel production and hence not available for other uses,
the increased demand for animals proteins that in turn requires grains as inputs for the production of more meat,
unfavorable climatic conditions together with increased demand impacted negatively on stock levels,
World grain production, consumption and stocks
7
Source: International Grains Council, 2008
World wheat production, consumption and stocks
8
Source: International Grains Council, 2008
World maize production, consumption and stocks
9
Source: International Grains Council, 2008
10
Increases in food prices – causes High food prices caused by the increases in agricultural
commodity prices on the international market can be attributed, but are not necessarily restricted to
the lower availability of grains due to use for biofuel production and hence not available for other uses,
the increased demand for animals proteins that in turn requires grains as inputs for the production of more meat,
unfavorable climatic conditions together with increased demand impacted negatively on stock levels,
trade restrictions that were imposed by major grain exporting countries, such as Argentina,
increasing energy and fuel costs making transport of grains more expensive, and
potential misuse of market power on the input and output sides of the agro-food chains.
11
Inflation trends in South Africa
Latest information published by Statistics South Africa food price inflation year-on-year (May 08) was 17 percent
2.50
4.00
5.50
7.00
8.50
10.00
11.50
13.00
14.50
16.00
Jan-0
6
Mar-0
6
May-0
6
Jul-0
6
Sep-0
6
Nov-0
6
Jan-0
7
Mar-0
7
May-0
7
Jul-0
7
Sep-0
7
Nov-0
7
Jan-0
8
Mar-0
8
% c
han
ge
CPIX CPI-Food
Source: Stats SA, 2008.
Drivers of inflation
Source: National Treasury, 2008.
12
13
Formal Retail Growth trend vs CPISales increase in line with inflation (typically) but strong indications of a slow down towards Xmas 2007. Economic pinch starting to occur.
8.4
13
.4
19
.0
15
.6
0
2
4
6
8
10
12
14
16
18
20
Jan
'04
Ma
r
Ma
y
Jul
Se
p
No
v
Jan
'05
Ma
r
Ma
y
Jul
Se
p
No
v
Jan
'06
Ma
r
Ma
y
Jul
Se
p
No
v
Jan
'07
Ma
r
Ma
y
July
Se
pt
No
v
CPI - All Items CPI - Food % Growth: Total Store Sales (Top End Retail)
Source: AC Nielsen
Province Number of outlets
Number of price collectors
Number of food items
Eastern Cape 17 8 26/outlet
Free State 28 8 26/outlet
Mpumalanga 21 11 26/outlet
North West 23 7 26/outlet
Gauteng 16 7 26/outlet
Limpopo 21 21 26/outlet
Western Cape 19 4 26/outlet
KwaZulu-Natal 27 15 26/outlet
Northern Cape 18 7 26/outlet
15
Increases in food prices - local prices (May-07 to May-08)
Average price change for wheat products: up 40.25% Safex wheat price: up 69.10%
Average price change for maize products: down 1.16% Safex maize price: up 7.88%
Average price change for sunflower products: up 64.25% Safex sunflower price: up 66%
Average price change for fresh vegetables: up 26.41%
Average price change for fresh meat: up 12.59%
Average price change for dairy products: up 23.34%
Selected food price changes: Urban areas
Products Size Gauteng National prices Price difference (price/unit)
Jan-07
Jul-07
Dec-07
Apr-08
Jan-07
Jul-07
Dec-07
Apr-08
Jan-07
Jul-07
Dec-07
Apr-08
Loaf of brown bread 700g 4.62
4.75
5.37
6.40
4.59
4.96
5.27 5.86 0.03 -0.21 0.10 0.54
Loaf of white bread 700g 5.02
5.55
5.98
6.94
4.98
5.43
5.85
6.71 0.04 0.12 0.13 0.23
Maize meal 5kg
14.37
18.36
18.09
17.89
17.39
20.68
20.47
21.57 -3.02 -2.32 -2.38 -3.68
Margarine 500g 8.19
8.55
9.96
10.66
7.69
8.15
9.03
10.30 0.50 0.40 0.93 0.36
Sunflower oil
750ml 7.34
8.26
10.84
15.10
7.65
8.21
11.32
15.83 -0.31 0.05 -0.48 -0.73
Full cream long life milk 1L
5.02
6.12
6.73
6.78
6.51
7.54
8.21
8.35 -1.49 -1.42 -1.48 -1.57
Pilchards in tomato sauce 425g
7.58
8.20
8.27
9.02
7.62
8.31
8.42
8.84 -0.04 -0.11 -0.15 0.18
White sugar 2.5kg
13.50
13.66
14.23
14.32
14.38
14.30
14.80
14.73 -0.88 -0.64 -0.57 -0.41
Peanut butter 410g 9.84
11.37
11.04
12.49
10.19
11.10
11.87
12.82 -0.35 0.27 -0.83 -0.33
Total -5.52 -3.85 -4.72 -5.41
Selected food price changes: Rural areas
Products Size Gauteng price National prices Price difference (price/unit)
Jan-07
Jul-07
Dec-07
Apr-08
Jan-07
Jul-07 Dec-07
Apr-08
Jan-07
Jul-07 Dec-07 Apr-08
Loaf of brown bread 700g 5.04
5.44
5.60
4.62
4.82 5.25
6.07 0.42 0.62 0.35 -
Loaf of white bread 700g 5.28
5.95
6.13
6.84
5.10
5.39 5.88
6.73 0.18 0.56 0.25 0.11
Maize meal 5kg
25.50
23.58
22.84
23.59
21.40
24.36 24.68
25.16 4.10 -0.78 -1.84 -1.58
Margarine 500g 9.63
12.28
11.68
12.96
8.01
8.56 9.63
10.30 1.63 3.72 2.05 2.67
Sunflower oil 750ml 9.01
9.74
10.62
13.88
8.38
8.82 10.28
14.34 0.63 0.92 0.34 -0.47
Full cream long life milk 1L 6.25
8.08
10.98
9.50
6.85
8.22 8.92
8.03 -0.60 -0.14 2.07 1.47
Pilchards in tomato sauce 425g
10.12
11.10
10.81
11.45 8.91
9.64 10.14
10.98 1.20 1.46 0.67 0.47
White sugar 2.5kg -
16.47
17.92
17.92
16.28
16.51 18.50
17.65 -0.04 -0.58 0.27
Peanut butter 410g
11.75
12.23
12.49
12.45
11.22
11.91 12.60
13.29 0.52 0.31 -0.11 -0.84
Total 8.08
6.64
3.20
2.09
18
Increases in food prices – causes High international prices transmitted to domestic market
Exchange rate also plays a role Local demand and supply situation determines whether prices are
closer to import or export parity (note that import parity is the higher of the two).
For most of the domestically produced grains, and in particular wheat and sunflower seed, South Africa is a net importer meaning that prices of these commodities will almost always be closer to import parity than export parity.
May 2007 to May 2008
Yellow maize price (SAFEX) 7.13%
Maize import parity price 58.72%
Maize export parity price 70.53%
Much larger crop expected
May 2007 - May 2008Maize Super 5KG 2.36%Maize Special 5KG -4.68%White maize (SAFEX price) 7.88%
May 2007 - May 2008
Sunflower oil 2 liter 114.58%
Sunflower oil 750 milliliter 106.66%
Sunflower price (SAFEX) 66.00%
22
Increases in food prices – causes High international prices transmitted to domestic market
Exchange rate also plays a role Local demand and supply situation determines whether prices are
closer to import or export parity (note that import parity is the higher of the two).
For most of the domestically produced grains, and in particular wheat and sunflower seed, South Africa is a net importer meaning that prices of these commodities will almost always be closer to import parity than export parity.
Local demand and supply situation
23
Production struggling to keep up Population grew by 32.2% from
1991 – 2007 population growth does not
include unregistered immigrants Increase in per capita
income Agricultural production
increased by 10% over the same period
Challenges: Climate change Drought policy Availability of water and quality
of water Increase productivity
35000
37000
39000
41000
43000
45000
47000
49000
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Th
ou
san
ds
Population
24
Increases in food prices – causes High international prices transmitted to domestic market
Exchange rate also plays a role Local demand and supply situation determines whether prices are
closer to import or export parity (note that import parity is the higher of the two).
For most of the domestically produced grains, and in particular wheat and sunflower seed, South Africa is a net importer meaning that prices of these commodities will almost always be closer to import parity than export parity.
Local demand and supply situation Increasing input costs
25
Rising input costs
Rising input costs globally and domestically seriously threatens the sustainability of the agricultural sector
Mainly three factors reasons for increasing input costs, namely: the ongoing hikes in oil and natural gas prices, very high demand for fertilizer due to increased
production for food and bio-fuel and very high demand for food in world and
specifically in China and India.
26
Rising input costs (…continue) Crude oil prices have soared nearly
70 percent in the past 12 months
Local prices are further negatively influenced by high shipment cost and the Rand/US$ exchange rate.
Diesel 0.05% S Gauteng and diesel 0.05% S Coast increased by 90.4 and 92.8 percent, respectively from December 2005 to June 2008. Comparing year-on-year for
June 2008 prices increased by 61.4 and 62.9 percent, respectively.
Source: South African Petroleum Industry Association (SAPIA), 2008.
4.50
5.00
5.50
6.00
6.50
7.00
7.50
8.00
8.50
9.00
9.50
10.00
10.50
De
c-0
5
Fe
b-0
6
Ap
r-0
6
Jun
-06
Au
g-0
6
Oct
-06
De
c-0
6
Fe
b-0
7
Ap
r-0
7
Jun
-07
Au
g-0
7
Oct
-07
De
c-0
7
Fe
b-0
8
Ap
r-0
8
Jun
-08
R/li
tre
Diesel 0.05% S Gauteng Diesel 0.05% S Coast
The effect of diesel price increases on the cost of production
Source: Department of Minerals and Energy, 2008 MediaGrainSA, 2008
28
Rising input costs (…continue) Fertilizer prices experienced significant
increased over the last year or so.
From 2007 to June 2008 selected fertilizer prices increased as follows: Local MAP and
international DAP increased with 103.3 and 134.7 percent, respectively.
Safex Spot Price of white maize and wheat increased by 15.3 and 58.2 percent, respectively.
050
100150200250300350400450500550600650700750
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Inde
x 20
00=1
00
Local MAP Int. DAP R/$ Exchange rate
29
Rising input costs (…continue)
From 2007 to June 2008 selected fertilizer prices increased as follows: Local Urea and international
Urea increased with 45.3 and 28.7 percent respectively.
Safex Spot Price of white maize and wheat increased by 15.3 and 58.2 percent, respectively.
0255075
100125150175200225250275300325350375400425450475
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Inde
x 20
00=1
00
Local Urea Pril (46) Int. Urea R/$ Exchange rate
30
Rising input costs (…continue)
From 2007 to June 2008 selected fertilizer prices increased as follows: Local Potassium Chloride
and international MOP increased with 113.5 and 100 percent respectively.
Safex Spot Price of white maize and wheat increased by 15.3 and 58.2 percent, respectively.
0
50
100
150
200
250
300
350
400
450
500
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008In
dex
2000
=100
Local Potassium Chloride R/$ Exchange rate
Int. Muriate of Potash (MOP)
Actions by other countries Grain export ban and taxes
Argentina, Croatia, India, Russia, Serbia, Ukraine and Vietnam
Reduce grain import tariffs Morocco, Nigeria and Turkey
Import subsidies for specific grains Saudi Arabia
Selective grain/bread subsidies to poor consumers with or without rationing of individual households. Egypt and Ethiopia
School lunch programs Kenya, Mexico and USA
31
Implication: world demand growth slows, but income sensitive products grow most
0%
1%
2%
3%
4%
5%
6%
7%
Av
era
ge
an
nu
al
gro
wth
1998-07
2007-17
World cereal production to rise
+0.5%+0.9%
+0.9%
+2%
+1.3%
Th
ou
san
d M
TT
ho
usa
nd
MT
Meat consumption grows especially in developing countries, driven by economic growth …
+11%
+30%
+7% +10% +17% +2%
+33% +27% +33% +26%
Thousand MTThousand MT
China demand unphased
Source: Oilworld, No. 22 Vol. 51, May 2008.
China: Imports of 17 oils and fats
0
2
4
6
8
10
12
94/95
95/96
96/97
97/98
98/99
99/00
00/0101/0
202/0
303/0
404/0
505/0
606/0
707/0
8
Mil.
tonn
es
Soya oil
Palm oil
Other
Potatoes
National Potato Area
0
10
20
30
40
50
60
702006
2007
2008
2009
2010
2011
2012
2013
2014
Th
ou
san
d h
a
Total Area
Sunflower cake
Sunflower cake
0
100
200
300
400
500
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Th
ou
sa
nd
to
ns
Production Consumption
Summary
World commodity prices will likely remain above previous decade averages in both nominal and real terms.
Rising income and slowing population growth to drive world food demand
The biofuel industry is new and rapidly evolving linking food and energy markets
Net importers more vulnerable