Massive food price inflation
03 August 2012 | ELEANOR SEGGIE
According to Mike Schüssler of economists.co.za meat will see an especially high hike in prices. The current higher prices are likely to lead first to higher maize meal, cereal and bread prices, with meat prices likely to rise three/four months after.
Schüssler was giving a briefing on ‘‘Food prices and threats to the food sector’’ in Johannesburg yesterday.
According to some experts, SA is in a ‘‘perfect storm’’ where income is not going up as quickly and food prices are rising. Currently, the latter has more to do with the major US drought – the worst in 56 years – but these prices are unlikely to come down quickly due to input prices (like seeds), explained Schüssler.
Local food prices rose 44.4% in the first seven months of this year versus last year and are likely to rise higher still.
He estimates that CPI will go up to over 6% in the next 12 months and under those circumstances we won’t see interest rate increases. But while the very rich will spend about 10% on food, the poorest spend 40% of their income on food – so the latter will be the hardest hit.
‘‘The fact that two multinational firms are likely to benefit by between R189m and up to R300m at the expense of the South African consumer (due to seed price increases), makes this a perfect storm ... This is not a storm in a tea cup but real socio-economic reality that the country can control.’’
Schüssler believes if the Pannar Seed acquisition by US multinational Pioneer Hi-Bred is allowed, SA farmers would face a duopoly with Pioneer and Monsanto dominating 90% of the local seed market.
This would increase the ability of the firms to unilaterally increase prices of maize seed – expected at 12% – on top of high maize prices, according to Syngenta research.
In June the Competition Appeal Court overturned the decisions of the Competition Commission and Tribunal to block the takeover of local firm Pannar Seed by US multinational Pioneer Hi-Bred. The commission is now seeking leave to appeal at the Supreme Court against the ruling.
Reportedly, the Supreme Court is likely to take eight to 12 weeks to decide on whether it will hear the matter or not. If a merger is approved, it will be implemented in about a year, after which the 12% price increase is estimated to kick in.
Since 1999, seed prices have increased by 17.7% annually on average. This means that a price increase of around 30% on seed prices could knock farmers in the near future.
According to GrainSA, seeds make up as much as 12% of total variable crop farming costs, second highest after fertiliser and lime. Schüssler said with 2.7 million hectares planted in SA currently, the 12% increase would mean a minimum of R189m to R300m input cost increases for maize producers.
‘‘Grain farmers, according to GrainSA, only made a net profit margin of 4.4% in 2009/10 – this would then fall to 3.4 to 3.1%,’’ said Schüssler. Farmers are under pressure from rising electricity and fuel costs. The extra cost of seeds would of course then fall on consumers.
A joint statement by DuPont Pioneer and Pannar Seed states that the Competition Appeal Court found, at worst, short-term post merger pricing was predicted to increase by 1.6%. It calls the 12% increase ‘‘patently incorrect, misleading’’ and not reflective of ‘‘the evidence in the proceedings before the Competition Tribunal or the Competition Appeal Court’’.
The statement says the Appeal Court found that even when assuming this ‘‘worst-case scenario’’ the benefits of the merger swamp any potential short-term price effects.’’
DuPont Pioneer and Pannar Seed have filed an answering affidavit with the Supreme Court of Appeal in response to the Competition Commission’s application.
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