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

Oil MetalsAll Commodities Food Rising Commodity Prices (January 1990 = 100)

Oil Prices (US$/Barrel)

International fertilizer prices FebAprJunAugOktDecFebAprJunAugOktDesFeb Rand per ton Ammonium DAPPotasiumUrea

Mean Real GDP Growth (%) World Developed DevelopingChinaIndiaUSA

End stocks and the Price of Wheat the past 10 years

USA Maize production, exports and ethanol use (MMT) ExportsMaize for ethanolMaize Production

Soya production, consumption and end stocks (MMT) /9898/9999/0000/0101/0202/0303/0404/0505/0606/0707/08 Production ConsumptionEnd stocks

Vegetable oil imports by China (MMT) Million ton

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

PRODUCTION YEARS Maize area planted in South Africa 1923/24 to 2006/07 Million hectares

PRODUCTION YEARS Ton/ha Mean yield of maize:1923/24 to 2006/07

C ompetitiveness, 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 :

Profitability of Sector

Agricultural Export and Import Volumes:

Agricultural trade balance:

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: R million

Year R Million Capital Stock in Agriculture (Constant 2000 prices):

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

Defining confidence Confidence is in effect, a belief, a self-assurance in one’s own ability. It is essentially a feeling of having an expectation of success (Vealey, 2001). Business confidence is a belief, an assurance in the business environment, company’s resources and in the business’s ability to compete (ABC, 2001).

Trends in Agribusiness Confidence :

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