Household incomes of poor eroded by rising food prices: Gareth Ackerman (Pick n Pay)
Gareth Ackerman (Chairman of Pick n Pay) has a piece in Business Day today on household food security and small farmers (Link)
“SOUTH Africans recently have been warned that they will soon be paying more for basic food produce due to rising costs and the worst US drought since 1956. Economists have pointed to the Statistics SA finding that food and non-alcoholic beverages inflation stood at 8.7% according to the April consumer price index. Analysts project that this could rise to as much as 18%, driven by the recent rapid increase in the price of locally produced grain products and by rising input costs, including electricity, labour, fuel, fertiliser and packaging.
For the poor, however, the smallest food price increases will be even more severe, and among the poorest 30% of our population, inflation for even the most basic food basket will be significantly higher.
This month, the United Nation’s Food and Agriculture Organisation (FAO) reported that the severe deterioration of maize crop prospects in the US had pushed up global prices by almost 23% last month, while international wheat prices rose 19% amid worsening output prospects. The FAO’s food price index, which measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar, registered an overall 6% increase in June, driven mainly by a surge in grain and sugar prices. These prices may increase further, as rising temperatures and more intense droughts take their toll on harvests at a time when the price of soya beans and other grains such as wheat and rice are also reaching new highs.
SA cannot escape the effect of what happens to US maize production, which accounts for nearly 40% of the global harvest, because maize is traded in the strong US dollar. And SA has not been self-sufficient in wheat for many years — we are forced to import it at prices governed by international markets and the rand’s exchange rate.
Because wheat and rice are the world’s food staples, while maize is the feed grain for livestock and poultry, global food production is increasingly struggling to keep up with the record growth in demand in recent years.
As history has repeatedly taught us, food prices and diminished food security are the stuff of which civil unrest and revolutions are made. In 2007-08, when the world experienced a huge and sudden rise in food prices, driven largely by the effect of the oil price on production costs, the resulting food emergency provoked food riots from Egypt to Mozambique and Mexico and was one of the spurs for the Arab Spring.
Rising food prices are steadily eroding the household incomes of the country’s poor. Statistics SA tells us that in 2005-06, the average household spent 14.5% of its total annual income on food and non-alcoholic beverages. By 2008-09 this had increased to 19.3% and by late last year the poorest 30% of the population were spending 36.4% of their total income on basic food requirements. Compare that to the fact that at the same time the country’s wealthiest 30% were spending only 2.9% of their total income on food, and we can see how inequitably food inflation is hitting the poor. It should therefore come as no surprise that food security is part of the National Intelligence Agency’s watch.
It is inevitable, predictable and wrong that farmers and retailers will be blamed for these increases, but consumers and the government need to understand the nature of the food value chain if we are to develop effective mechanisms to arrest an unremitting series of food hikes.
As the bottom link of the food chain, the retail sector is hard put to mitigate the effect of rising prices. The data demonstrates that the profit margins of SA’s retailers are among the lowest in the world and we are unforgiving in our resolve to negotiate better product prices with suppliers wherever possible. And along with producers, retailers are faced with growing administered prices for fuel, municipal utilities and wages, which put additional pressure on profits and returns on investment as we try to avoid passing all of these costs on to the consumer.
A further problem in SA has been the trend towards concentration of ownership and control along the food value chain. Thus we have witnessed a concentration of ownership and control in the bread and seed distribution sectors.
At the same time, there is a shrinking base of commercial producers. As the South African Institute of Race Relations recently reminded us, commercial farmers account for 95% of the country’s locally produced food, planting their crops on only 5% of the agricultural land. This means that only 5% of our food is being produced by emerging and subsistence farmers. The few black entrants who do make it into the commercial sector do so in conditions that make it difficult for them to compete on an equal footing.
On top of this have come warnings that our food security is under threat, as thousands of hectares of SA’s most arable land are lost to mining activities in the mineral-rich northern provinces that are the heart of its maize producing area. Our food security is also imperilled by failed land reform initiatives, a lack of state incentives for small-scale farmers, deteriorating transport infrastructure in rural areas, and increasingly volatile weather patterns. This is not helped by criticism of the efficacy of our land redistribution authorities and the blame being placed — incorrectly in my view — on the willing buyer, willing seller process.
According to the Economist Intelligence Unit’s global food security index, SA ranks 40th out of 105 countries, sharing the mid-ranking cluster with Botswana, Ghana and most of North Africa. However, we rank only 13th out of 28 comparable middle-income countries, behind our Bric partners Brazil, Russia and China.
The potential of small-scale farmers could be part of the solution to food insecurity and poverty reduction. Investing in small-scale farmers is just the first step in helping to make their livelihood more sustainable as, historically, the most challenging area for emerging farmers has been market access.
But for small-scale food production to succeed, the country needs to urgently improve its rural infrastructure to ensure cost-effective agricultural production and processing, to step up strategic government support to emerging farmers, and to devote more attention to reducing input costs such as marketing, electricity and transport.
This is particularly important in light of the finding in April in the food price monitor, compiled by the National Agricultural Marketing Council, that rural communities paid R14.89 more than urban consumers for the same food basket — far higher than the R2.37 in the previous month. Rural shoppers paid R8.24 more than their urban counterparts for 5kg of maize meal, also significantly higher than the price difference in April last year.
But above all, there is a need for an end to the uncertainty and confusion that characterises the government’s agricultural and land policy. There is a pressing need to revisit the land tenure regime in SA’s traditional rural areas, where communal tenure should be converted to individual land ownership. By extending the benefits of land ownership, we will move rural food producers out of their precarious subsistence farming, increasing agricultural productivity, alleviating poverty and promoting food security.
The Cabinet expressed concern this month at the escalation of food prices and its effect on the poor. But if it is to address the problem, it will require a thorough set of decisions on land policy, state support for the agricultural sector and the control of input costs across the entire food supply chain”
I am always pleased to see the Business folk taking food security serious, and Pick n Pay have spoken about the role of small farmers for some time. I welcome this. But, I hope the final point in his conclusion is written strongly enough. It isn’t just production and land. It is the whole food system. And this requires a very different set of policy and governance responses.
- foodramblings posted this
University of Cape Town