Are producer prices low enough to contribute to effective hunger alleviation?

December 2010

Dr Kobus Laubscher, CEO

The current stock levels of staple foods at producer level is definitely contributing meaningfully to the lowest food inflation levels in a very long time. The question remains whether it alleviates hunger sufficiently?

Low interest rates are supposed to stimulate economic growth through consumer spending without increasing the demand for unhealthy credit. Analysts of the performance of our economy, however, agree that the economy is not moving to create employment and to benefit from the current favourable conditions, in fact some of the most recent pronouncements make a strong point that South Africa is indeed very lucky to simultaneously experience low interest rates as well as low inflation.

The tragedy, however, is that a significant portion of our population still experience household food insecurity. There are even indications that household food insecurity is on the increase. Opposed to this, the other reality is that as far as staple food like maize is concerned, the supply surplus has a number of producers in financial straits that puts the future of maize production under pressure. A surplus of staple food and an increase in hunger with an estimated 14 million South Africans being food insecure, points to a paradox. In the meantime the economy is losing job opportunities and the expectation is therefore that more and more South Africans may fall into this category.

In the August 2010 “Food Price Monitor” of the National Marketing Council (NMC) interesting facts surface about the cost of a package of five of the most neccessary food items that are typical of poor consumers.

Such a package/plate of food comprises 22 g white sugar, 2,5 g of tea, 56 g full cream milk, 150 g brown bread and 532 g maize meal. From July 2009 to July 2010 the cost thereof reduced by 2,3% to R3,01 per day. What is important is the proportional changes in the composition of the package and the contribution of maize to the meagre price reduction.

The following is also of importance here. A 5 kg bag of special maize meal cost R16,91 in July 2009 and a year later, in July 2010, the same packaging weight cost 5,91% less at R15,91 per bag. The price of a 5 kg bag of super maize meal have also reduced with 10,4% over the same period to R20,98. From an affordability point of view, this is a very favourable trend in both instances, but what causes concern, is that the tempo of the reduction in the consumer price of this packaging weight has slowed down.

From April 2009 to July 2010, the average reduction in maize meal prices (measured at the 5 kg packaging weight) was 9,08%, but from July 2009 to July 2010 it was only 8,16%. Conversely, the production price of white maize have reduced with 18%. A mere 8,9% reduction in the cost of the maize meal portion in the cost of R3,01 is not good enough against the background of the huge drop in producer prices for maize.

The reality of these disproportionate price changes must be clearly understood. An increasing number of people go to bed hungry because they cannot even afford the minimum. In contrast, maize producers must take decisions about maize production, because low and declining prices at farm level are indicators for a reduction of the supply.

An appeal to produce more in order to lower prices, does not apply to producers. In their case, prices cannot go any lower, because it is already cheaper to buy than to produce.  On the other hand, it is worrying that amidst low farmprices, a significant amount of consumers have to face the trauma of hunger without the hope of being able to afford even the cheapest staple such as maize meal.

It is just not good enough anymore to hear that maize producers are contributing to lower inflation whilst the appreciation for it is not going to reward them for the negative terms of trade they are expected to work with. What is neccessary is for the cheap food leaving the farm gate to reach the consumer as cheaper food. Bigger effective demand coupled with increased consumption is the only sustainable solution to get the market in balance.

Publication: December 2010

Section: Editorial