Food price pain looms

2012-08-04 15:00

Seed breeder merger will add additional pressure to an already drought-plagued food season

South African consumers not only have to face a food-price hike because of the current drought in the US – another concern is also adding pressure.

The looming merger between two seed breeders, Pioneer Hi-Bred International from the US and local company Pannar Seed, is likely to keep food prices high, long after the drought in the US has ended, economist Mike Schussler warned this week.

At the moment, the US is facing its worst drought in 56 years and its hottest summer on record since 1895. Grain prices have skyrocketed as a result.

Schussler said white maize prices rose by 44.4% because of the US drought.

“Maize prices (in total) have more than doubled in the last year due to drought,” he said. “We will definitely feel it in our food prices.”

But more ominous is his prediction that food prices will continue to rise, because of the rising input costs of farming.

The storm around the controversial Pannar merger comes right in the middle of the price hike. Schussler explained that, already, seed costs are the second-highest input cost for farmers, with only lime and fertiliser taking up more of farmers’ cash.

 Seed accounts for about 10% of total input costs, costing more than casual and permanent labour combined.

“Ultimately, the consumer stands to lose. The fact that two multinational firms are likely to benefit by between R189 million and up to R300 million at the expense of the consumer makes this a perfect storm,” Schussler said.

“This is not a storm in a teacup. While international food prices are likely to rise over the next few months, regardless of what we do in South Africa, the fact remains that there is one part of it that we can control – the merger.”

The only other significant player in this market is Monsanto South Africa.

Thus the proposed merger would reduce the number of players in the seed market from three to two and the merged company would dominate 90% of the market.

In Mexico, a similar merger led to seed prices ending up 40% higher than the world average, Schussler said.

“The drought element is more cyclical. What is structural is seed prices and input costs,” he said. “Two years down the line we’ve forgotten the drought, but input costs are permanent.”

Schussler’s firm was commissioned by Syngenta, a company that opposes the merger, to investigate the impact of the merger on food security in South Africa.

The Competition Commission filed an application to appeal the Competition Appeal Court’s (CAC) approval of the merger with the Supreme Court of Appeal (SCA) in June. Court papers show that the two seed breeders conceded that seed prices would go up by 12% because of the merger.

The commission’s lawyer Nick Altini of Cliffe Decker Hofmeyr said this was the first time the commission has taken a case to the SCA.

“This is how important they see this,” he said.

He said if the merger is approved by the SCA, the two companies will merge in approximately a year’s time.

Pannar and Pioneer have promised to cap seed price increases for Pannar maize hybrids and open pollinated maize varieties for three years as part of the approval by the CAC.

They have also given an undertaking that subsistence farmers will not suffer a price rise for at least three years, in part to counter the price fears.

The court imposed further conditions that include setting up an international research and technology hub in South Africa to improve expertise in crops in Africa.

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