How maize prices can hurt the ANC at the poll

(File: ANC)
(File: ANC)

Johannesburg - Drought has pushed up the cost of white maize and other food staples of poor South Africans and faster price rises will squeeze budgets further, potentially hurting the ruling African National Congress (ANC) before local elections in August.

The lowest rainfall on record in 2015 has led to parched lands and soaring feed costs. When combined with a weak rand currency that makes imported goods more expensive this has meant maize products, bread, lamb, beef have all got more expensive.

Of particular concern is the rising price of white maize that poor and lower-income households use to make the calorie-rich porridge known as "pap" and of sunflower oil that they use for cooking.

These groups make up the political support base of the ANC and President Jacob Zuma who have already lost public trust after a court ruled that he breached the constitution, the latest in a string of scandals.

"Pressures on household budgets will inevitably lead to increased political pressure on the ruling party. People are worried about how they are going to feed their children," said Gary van Staden, political analyst with NKC African Economics.

Consumer inflation in Africa's most advanced economy sped up to 7% in February from 6.2% in January, with the food component rising to 8.6% from 6.9%.

For very low-income households, the data is even gloomier, with inflation running at 7.8% and food inflation as high as 11.8 percent in rural areas, the ANC's stronghold, speeding ahead of the annual 8.1% increase in social grants.

Meat, then cereals including maize derivatives, and bread, contribute the largest chunk of food, which makes up 14.2% of the overall indicator. With a time lag between delivery and retail prices, analysts are expecting it to continue to accelerate at least until June of next year.

"The outlook for lower income households in particular is incredibly downbeat as these consumers are hardest hit by rising food prices and the increases in the grants that they receive do not necessarily match the higher cost of living," said Jana van Deventer, an analyst at ETM Analytics.

"Rural areas’ food inflation rate tends to overshoot and undershoot other areas’ during times of rampant inflation and disinflation respectively," Van Deventer said.

NKC sees overall food inflation exceeding 12% in August and hitting 13% in December.

This does not bode well for Zuma, who is facing calls from within his own party to step down after a court ruled this month that he breached the constitution by ignoring an order to repay some of the $16m in state funds spent renovating his private home.

The ANC launched its manifesto for the local August elections on Saturday in the Nelson Mandela Bay municipality, where it risks losing control as well as in some key cities such as Johannesburg.

Herds, harvests under pressure

The retail price of maize and sunflower oil products increased on average by 32% year-on-year in February. Price pressures remain in the pipeline because of the six-nine-month lag period from the delivery price to silos and futures market, according to Wandile Sihlobo, economist with producer group Grain SA.

"We will see additional price increases, probably until the middle of 2017. If we get good rains by December that will reflect in the futures prices which will then come down after six months," he said. If not, price pressures will remain.

White maize futures prices doubled last year and are currently around R4 500 ($313) a tonne, within striking distance of record peaks just above R5 000.

South Africa will likely harvest 7.1 million tonnes of maize in 2016, 29% less than last year because of the drought and late plantings, the government's Crop Estimates Committee said last month.

Prices for bread and other starches are also on the rise as are those for meat.

Gerhard Schutte, chief executive of South Africa's Red Meat Producers' Organisation, told Reuters that prices for the most produced grades of beef and lamb have risen 13% on a year-on-year basis.

Parched grazing lands and soaring feed costs have forced farmers to slaughter cattle, which has contained price rises for processed products but not fresh meat.

More increases are on the horizon because of the reduction in the size of the national herd of around 13 million animals, which will mean potential shortages as numbers are rebuilt

Schutte said subsistence farmers, who own about 40% of the herd, were estimated to have lost 7 to 8% of their cattle, while commercial farmers' herds suffered mortality rates of around 3%.

"We do foresee another phase of emergency slaughterings just before the winter when a lot of guys realise they will not make it through the winter," he said, adding that it could take three to four years to rebuild the herd.

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