THE RUSSIA-Ukraine war has led to significant upside risks to food price inflation, according to the Agricultural Business Chamber (Agbiz).
Wandile Sihlobo, the chamber’s chief economist, said yesterday that Russia and Ukraine account for nearly 30 percent of global wheat exports, about 14 percent of global maize exports, roughly 32 percent of global barley exports, almost 60 percent of global sunflower oil exports and about 14 percent of global fertiliser exports.
“With various shipping lines avoiding the Black Sea region, and the extensive sanctions that Western countries have imposed on Moscow – including the agreement to exclude some Russian banks from some global payment systems, such as SWIFT – there is anxiety in global agricultural markets that the risks of food insecurity are now elevated. This is particularly the case as the war occurred when global agricultural, and input prices such as fertilisers, were already elevated, up by double-digits from the previous year,” Sihlobo said.
The inescapable impact of the military operation on South African consumers would be through prices. The rise in agricultural commodity prices, domestically and globally, along with rising fuel costs, presented significant upside risks to food price inflation
“We had initially thought [that] in 2022, South Africa's food price inflation would average between four to five percent (compared with 6.5 percent in 2021). However, we now see more upside risks to these numbers. When we made these estimates, the war was not on our radar, even though the global food prices were already relatively high.
"For example, the FAO Food Price Index averaged 136 points in January 2022, up by one percent from December 2021 and the highest since April 2011. Vegetable oils and dairy products mainly underpinned the recent increases in the Food Price Index. The grains will now add to the global food price drivers,” he said.
Agbiz said that with regards to agricultural commodities, poor production conditions in South America due to La Niña, combined with a strong demand for grains and oilseeds in India and China, and a poor palm oil harvest in Indonesia, were key underpinning drivers of prices.
Small grain-producing regions such as East Africa were also negatively affected by the La Niña conditions, which led to drought and raised fears of increasing food insecurity.
A range of factors has been behind the sharp input cost increases for fertilisers. These include supply constraints in critical fertiliser-producing countries such as China, India, the United States, Russia and Canada. Rising shipping costs, as well as high oil and gas prices, have also been contributing factors, along with firmer global demand from agricultural producers.
In January, the international prices of a range of key fertiliser ingredients shot through the roof. Since January 2021, the price of ammonia has gone up by 220 percent, urea by 148 percent, diammonium phosphate by 90 percent and potassium chloride by 198 percent.
Sihlobo said if the Ukrainian farming communities were disrupted and unable to fully produce in the next season, then global grains and vegetable oils supplies would be negatively affected. He said that similarly, a disruption in the fertiliser market impacts its usage and crop yields in various countries.
For South Africa, the near-term impact of the war was through price transmission and not a limitation on the commodities' availability.
“The one commodity that South Africa is most exposed to is wheat, as the country imports roughly half of its annual 3.4 million tons consumption. For the current season of 2021/22, which ends in September, South Africa has imported 40 percent of the estimated imports of 1.5 million tons.”
Agbiz said exporters such as the South African fruit industry stand to lose, as Russia was a major export market. Both the limited shipping lines and the exclusion of Russia in the global payment systems were major challenges.
“The citrus industry export season starts within the next two months, and this will be a challenge in addition to the pressures the apple and pear industries are already feeling through this impact. There will be a need to divert the roughly seven percent of citrus exports to Russia elsewhere, which could add downward pressure on prices and, after that, profitability.”
given.majola@inl.co.za
BUSINESS REPORT ONLINE