“The rise in food prices in recent years wasn't as surprising as the pace of the increases,” says Standard Chartered senior soft commodities analyst Abah Ofon. “It was the rapid rise that got the attention of governments and international agencies.”
In SA, food prices have stabilised. The National Agricultural Marketing Council (NAMC) says though food was still one of the major drivers of overall inflation in July, its contribution to this was lower than in June. It notes that maize price increases have slowed and even declined in some instances. “This means relief for poor consumers relying mainly on staple foods such as maize meal.”
The NAMC latest report says: “There were notable drops in prices of maize, wheat and rice over recent months; the same applies to dairy products. These trends should bring some relief.”
Ofon, however, believes that the recent fall in agricultural commodity prices is temporary. “Though commodities are down, the fundamentals are fairly strong. There have been structural changes and changing diets, including significantly greater consumption of meat.
“It takes a lot of grain to produce meat, so though prices are now bottoming out, they will move higher again.”
He says the “significant and sustained” fall in oil prices has also meant a drop in agricultural input prices. “In the 2007/2008 period, when food prices shot up, there was a perfect storm — a lot of things happening together that are not a part of the present scenario.”
Ofon says a decrease in speculative investment in agriculture has helped take the sting out of prices, and the lifting of export restrictions on food as governments breathe easier has eased concerns about supply. “There are still bans on the exporting of rice in India and Egypt, but similar bans elsewhere have been lifted.”
Bumper harvests in wheat, rice and oilseeds in the 2008/2009 season are other factors that are relieving the food crisis. Lower freight rates have also been a boon to countries importing grain.
The fall is thanks mainly to a lull in iron-ore imports by China after a huge increase in the first half of the year. Iron ore stock levels are high due to the volumes imported earlier and the closing of many Chinese steel mills for the Olympics. Though these mills are now operating again, imports are expected to take a few months to increase again.
Though the worst of the food crisis might be over, Ofon says the global credit crunch and liquidity might put a spanner in the works. “[The credit crunch] has had a major impact on banks that finance trade.”
Source: Financial Mail
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