Limited supplies, biofuel demand push maize prices up

Increased global demand for biofuel has pushed up the already buoyant price of maize in South Africa, forcing aid agencies to procure food from elsewhere to feed an expected more than six million food-insecure people in southern Africa.

After a second consecutive poor maize harvest in South Africa, which usually meets food shortfalls in the region, prices have been high, according to the latest USAID-funded Famine Early Warning Systems Network (FEWS-NET). Demand-driven world prices, especially in the USA, where maize is increasingly used to produce ethanol, have also pushed up prices in South Africa, and is expected to keep them high for the rest of the year.

In dollar value, the price of white maize has shot up by 186 percent in the last two years: from US$89 per metric tonne (mt) in May 2005 to $254 per mt in August this year, according to Phumzile Mdladla, who heads FEWS-NET's Southern Africa office. "But demand for biofuel is not the only reason for the increase, it is a combination of factors: the drought last season, high fuel prices and an increase in demand."

The high prices of maize, the region's staple food, come at a time when the size of the food-insecure population in Southern Africa has almost doubled, from 3.1 million in 2006 to approximately 6.1 million in 2007.

Until March 2008, 401,200 people in Lesotho are expected to face food shortages, 407,000 in Swaziland, and up to 4.1 million in Zimbabwe, according to FEWS-NET. The number of food-insecure people in Mozambique is expected to rise to 660,000 during the lean season between December 2007 and January 2008.

Sourcing food aid

High South African maize prices have forced the UN's World Food Programme (WFP), the largest food aid agency in the region, to procure from countries like Malawi, Zambia and Mozambique. "Maize prices in Malawi, which has had a record surplus - its highest ever, of over a million mt - is far more reasonable at around $180 per mt," said WFP spokesman Richard Lee.

South Africa's maize reserves were at their lowest in the last five years, according to FEWS-NET.

The South African Grain Information Service noted that in August the country had to import 504,904 mt of yellow maize from Argentina, and 5,537 mt of white maize from Zambia and Malawi to meet its domestic and export commitments to neighbouring Botswana, Lesotho, Namibia and Swaziland, as well as other countries with grain deficits.

Malawi and Zambia, two of the countries in the region producing a surplus, were already helping to fill shortfalls. Malawi is to supply some 400,000 mt to Zimbabwe over a 10-month period between May 2007 and February 2008, and an undetermined amount to Swaziland.

"By the end of August, some 158,000 mt had already been shipped to Zimbabwe, while nothing as yet had been moved of the Swaziland consignment. Zambia is also exporting to neighbouring Democratic Republic of Congo, Zimbabwe and South Africa," FEWS-NET said.

The Consortium for the Southern Africa Food Security Emergency (C-SAFE), which runs the second largest food security programme might escape the price increases through a pre-existing arrangment with the US Agency for International Development (USAID).

Jean-Claude Mukadi, the Southern Africa livelihood emergency response manager for World Vision, a member of C-SAFE said: "They [USAID] will ship in the food from the US - it is rare for them to not honour the arrangement. If there is a problem, they will let us know."

Record price hikes

Prices are rising much more quickly in the region's food-insecure countries, as households deplete whatever they could harvest from their own fields, according to the FEWS-NET report. "For example, in August, prices in southern Mozambique rose 30 percent over last year, and 50 percent over the past five-year average, limiting food access for the majority of the households."

In Zimbabwe, maize prices are at an all time high, driven by a critical scarcity, and acute shortages of foreign exchange to buy spare parts and fuel, which are hampering distribution of the meagre supplies available from the parastatal Grain Marketing Board. Prices are much higher in urban areas than the countryside, where the minimum wage falls well short of meeting the cost of an average family's needs.

Maize prices in US dollar equivalents in the three monitored markets - Harare, the Zimbabwean capital; Bulawayo, the second city, in the southwest; and the eastern city of Mutare - rose by 23 percent on average, from US$1.24 per kg in July to US$1.52 per kg in August, according to FEWS-NET, which used the official revised exchange rate of Z$15,000 to US$1.

However, prices in Bulawayo are double those in Harare and Mutare, indicating the severity of the shortages in the south of the country. Food prices are likely to rise further and remain high, as current food supplies, including domestic production and imports, are insufficient to meet domestic demand.

According to FEWS-NET, "Any delays in delivery and/or failure to bring in the planned imports (both commercial and food aid) will further exacerbate the situation."

jk/he/oa