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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

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impact of high food prices on producers and required interventions

IMPACT OF HIGH FOOD PRICES ON PRODUCERS AND REQUIRED INTERVENTIONS

John Purchase

Agricultural Business Chamber (ABC)

Gauteng Food Summit

10 & 11 July 2008

slide2
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

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

rising commodity prices january 1990 100

500

450

400

350

300

250

200

150

100

50

0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

Oil

Food

Metals

All Commodities

Rising Commodity Prices(January 1990 = 100)
international fertilizer prices

7000

6000

5000

Rand per ton

4000

3000

2000

1000

Feb

Apr

Jun

Aug

Okt

Dec

Feb

Apr

Jun

Aug

Okt

Des

Feb

2006

2007

2008

Ammonium

DAP

Potasium

Urea

International fertilizer prices
mean real gdp growth

12

10

8

6

4

2

0

Developed

World

Developing

China

India

USA

1975-90

2009-17

1990-2000

2000-07

Mean Real GDP Growth (%)
end stocks and the price of wheat the past 10 years

70

350

60

300

Million tons

$/ton FOB

50

250

40

200

30

150

100

20

10

50

0

0

87/88

91/92

95/96

99/00

03/04

07/08

End Stocks

U.S. HRW Price

End stocks and the Price of Wheat the past 10 years
usa maize production exports and ethanol use mmt

350

300

250

200

150

100

50

0

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Exports

Maize for ethanol

Maize Production

USA Maize production, exports and ethanol use (MMT)
soya production consumption and end stocks mmt

250

200

150

100

50

0

97/98

98/99

99/00

00/01

01/02

02/03

03/04

04/05

05/06

06/07

07/08

Production

Consumption

End stocks

Soya production, consumption and end stocks (MMT)
vegetable oil imports by china mmt

180

160

140

Million ton

120

100

80

60

40

20

0

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Vegetable oil imports by China (MMT)
south african situation

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

slide15

Maize area planted in South Africa

1923/24 to 2006/07

Million hectares

PRODUCTION YEARS

c ompetitiveness profitability and confidence of industry
Competitiveness, 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 1960 2007

2.50

2.00

1.50

1.00

0.50

-

1979

1969

1975

2001

2005

1961

1963

1965

1967

1971

1973

1977

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2003

2007

(0.50)

Competitiveness : 1960 - 2007
investment situation and climate

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.

slide26

9000

8000

7000

6000

5000

4000

3000

2000

1000

0

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Constant 2000 prices

Current prices

Gross fixed capital formation:

Agriculture, forestry and fishing: 1994-2006

R million

slide27

82000

81000

80000

79000

R Million

78000

77000

76000

75000

74000

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Year

Capital Stock in Agriculture

(Constant 2000 prices): 1995 - 2007

constraints and challenges to investment in agribusiness
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
trends in agribusiness confidence 2001 2007

2.50

2.00

1.50

1.00

0.50

-

1979

1969

1975

2001

2005

1961

1963

1965

1967

1971

1973

1977

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2003

2007

(0.50)

Trends in Agribusiness Confidence : 2001 - 2007
short term interventions

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

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 interventions1
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
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
conclusion1

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

conclusion2

Conclusion

Create confidence, competitiveness and profitability in the sector!