Food will continue to be costly

IOL pic jan12 ca P2 Shopping1 DONESUPPLIEDFile image of a food basket.

Johannesburg – South Africans may be breathing a sigh of relief that El Niño seems to have passed, but food prices will remain high well into next year.

This is according to a new Bright Africa special report from African investment specialists RisCura.

The report warns that the weather phenomenon will continue to impact food security, food prices and humanitarian needs well into next year.

El Niño is a warming of ocean surface temperatures in the eastern and central Pacific, which occurs every few years, and was the key driver behind SA’s recent drought, the worst in recorded history.

Last month, the South African Weather Service said the winter forecast showed the rapid fading of the El Niño weather pattern, although the overall picture was “cloudy”. The service added there was a possibility of a weak La Nina toward late spring and summer, which could see above-average rainfall.

El Niño left a trail of devastation in its wake, with food prices soaring and food insecurity a real issue as several crops failed. SA has needed to import maize.

Read also: Zimbabweans go hungry in ‘promised land’

Food insecurity is only likely to peak by December 2016 according to the United Nations Food Programme.

More than 10 million people in Ethiopia, 3 million in Zimbabwe (30 percent of the population) and a quarter of Swaziland’s population already need food assistance. Sudan is likely to see more than 4 million people at crisis levels of food insecurity by September this year.

RisCura report author Fran Troskie says “growing seasons, harvests and crops will remain affected well into 2017 with shortages in key agricultural commodities likely to persist even longer. As a result food prices have escalated sharply since December last year, and in South Africa, economists are predicting that food price inflation will reach 13 percent later this year.”

Read also: Declare drought a national disaster: Agri SA

The knock-on impact on overall food inflation and headline inflation has been somewhat delayed for at least two reasons: In the first place, processed items (such as samp and maize meal) typically have a lag of 6 to 9 months before reflecting input-price hikes, and the lags for dairy, eggs and meat are slightly longer, says RisCura.

In addition, retailers have been absorbing the brunt of the extra costs over the course of the past year, effectively subsidising cash-strapped consumers. It is clear, however, that they can only withstand so much margin-squeeze. Rising costs at producer level are increasingly likely to be passed through to the consumer, it adds.

As food makes up between 40 to 60 percent of the consumption basket of the poorest in Sub-Saharan Africa, rising food prices have the most immediate and acute impact on the most vulnerable communities.

“The average size of food baskets will shrink significantly, as will the quality of what fills them, as less nutritional foods are typically cheaper,” says Troskie.

Households will also be forced to undertake precarious budget-balancing acts. Education and ongoing health needs will be neglected. This will have longer-term, negative impacts on countries’ human capital, says RisCura.

“Investors need to be aware of the ongoing direct and indirect impact of El Niño on the sectors and countries they invest in, and consider both the challenges and the opportunities that have emerged,” Troskie adds.

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