1. 1 1 An update – movements in food prices Prepared by the National Agricultural Marketing Council Presented by Dr John Purchase CEO: ABC

2. 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. 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.

4. 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%. Source: UN-Food and Agricultural Organisation

5. 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. 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,

7. World grain production, consumption and stocks 7 Source: International Grains Council, 2008

8. World wheat production, consumption and stocks 8 Source: International Grains Council, 2008

9. World maize production, consumption and stocks 9 Source: International Grains Council, 2008

10. 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. 11 Inflation trends in South Africa Latest information published by Statistics South Africa food price inflation year-on-year (May 08) was 17 percent Source: Stats SA, 2008.

12. Drivers of inflation Source: National Treasury, 2008. 12

13. 13 Formal Retail Growth trend vs CPI Sales increase in line with inflation (typically) but strong indications of a slow down towards Xmas 2007. Economic pinch starting to occur. Source: AC Nielsen

14. Province Number of outlets Number of price collectors Number of food items Eastern Cape17826/outlet Free State28826/outlet Mpumalanga211126/outlet North West23726/outlet Gauteng16726/outlet Limpopo21 26/outlet Western Cape19426/outlet KwaZulu-Natal271526/outlet Northern Cape18726/outlet

15. 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%

16. 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 5.275.860.03-0.210.100.54 Loaf of white bread 700g 5.02 5.55 5.98 6.94 4.98 5.43 5.85 6.710.040.120.130.23 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 10.300.500.400.930.36 Sunflower oil 750ml 7.34 8.26 10.84 15.10 7.65 8.21 11.32 15.83-0.310.05-0.48-0.73 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 8.84-0.04-0.11-0.150.18 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 12.82-0.350.27-0.83-0.33 Total-5.52-3.85-4.72-5.41

17. 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-07Apr-08 Loaf of brown bread 700g 5.04 5.44 5.60 4.62 4.82 5.25 6.070.420.620.35 - Loaf of white bread 700g 5.28 5.95 6.13 6.84 5.10 5.39 5.88 6.730.180.560.250.11 Maize meal 5kg 25.50 23.58 22.84 23.59 21.40 24.36 24.68 25.164.10-0.78-1.84-1.58 Margarine 500g 9.63 12.28 11.68 12.96 8.01 8.56 9.63 10.301.633.722.052.67 Sunflower oil 750ml 9.01 9.74 10.62 13.88 8.38 8.82 10.28 14.340.630.920.34-0.47 Full cream long life milk 1L 6.25 8.08 10.98 9.50 6.85 8.22 8.92 8.03-0.60-0.142.071.47 Pilchards in tomato sauce 425g 10.12 11.10 10.81 11.45 8.91 9.64 10.14 10.981.201.460.670.47 White sugar 2.5kg - 16.47 17.92 16.28 16.51 18.50 17.65 -0.04-0.580.27 Peanut butter 410g 11.75 12.23 12.49 12.45 11.22 11.91 12.60 13.290.520.31-0.11-0.84 Total 8.08 6.64 3.20 2.09

18. 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.

19. May 2007 to May 2008 Yellow maize price (SAFEX)7.13% Maize import parity price58.72% Maize export parity price70.53% Much larger crop expected

20. May 2007 - May 2008 Maize Super 5KG2.36% Maize Special 5KG-4.68% White maize (SAFEX price)7.88%

21. May 2007 - May 2008 Sunflower oil 2 liter114.58% Sunflower oil 750 milliliter106.66% Sunflower price (SAFEX)66.00%

22. 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. 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

24. 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. 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. 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.

27. The effect of diesel price increases on the cost of production Source: Department of Minerals and Energy, 2008 Media GrainSA, 2008

28. 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.

29. 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.

30. 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.

31. 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

32. Implication: world demand growth slows, but income sensitive products grow most

33. World cereal production to rise +0.5% +0.9% +2% +1.3% Thousand MT

34. Meat consumption grows especially in developing countries, driven by economic growth … +11% +30% +7% +10% +17% +2% +33% +27% +33% +26% Thousand MT

35. China demand unphased Source: Oilworld, No. 22 Vol. 51, May 2008.

36. Potatoes

37. Sunflower cake

38. 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