Johannesburg/Lusaka - A tight grain supply outlook after
several bumper harvests is set to fan food price pressures in southern Africa,
fuelling salary demands and threatening to knock the region's fragile economies
out of kilter.
Erratic rains have delayed the planting of the crucial maize
crop in Zambia, pushing inflation towards double digits, while bread basket
South Africa is importing the staple despite abundant harvests because of
worries it has exported too much.
With a high proportion of households in the region spending
much of their limited income feeding themselves, rising food inflation is
likely to further stoke union demands in wage negotiations.
It will also make it tougher for South Africa's central bank
to refrain from hiking interest rates as it grapples with sluggishness in the
region's dominant economy.
Bumper crops in recent years, including in Zambia and
Malawi, have helped contain food inflation.
"In the case of southern Africa, it would appear that
the success story of recent years is increasingly becoming more of a threat to
the inflation picture," said Razia Khan, head of Africa research at
"Zambia ...had seen record grain harvests. While the
new government will devote even more attention to boosting agriculture, it may
not be sufficient to hold food prices - and inflation - down, if the rains are
Zambia's big yields have been attributed to government
subsidies to peasant farmers in the form of fertiliser and seeds but the crop
ultimately depends on rain and the country's agriculture minister told Reuters
things had gotten off to a bad start because of erratic weather.
Zambian inflation slowed to 7.2% in December from 8.1% in
November but the trend is seen reversing.
"If the rainfall pattern continues like this and we
have a bad crop then we are definitely going back to double-digit
inflation," said Chibamba Kanyama, an analyst with the think-tank
Economics Association of Zambia.
Warnings from East Africa
High oil and food inflation last year in east Africa
demonstrated the potential knock-on effects on developing economies of a spike
in prices of staple goods.
The region suffered from drought in late 2010 and the start
of 2011, sending the prices of basic commodities like wheat, maize and sugar
through the roof.
In Kenya last year, where inflation peaked at 19.7% in
November, the shilling dipped sharply against the dollar, bank lending rates
and debt servicing costs hovered close to 20% and the stock market fell 30% as
many foreign investors pulled out.
Zambia, meanwhile, does still have around 600 000 tonnes of
maize in reserve but a poor crop this growing season will fan price pressures.
"While non-food inflation has stubbornly remained in
low-double digits, with the currency weakening there is certainly upside risk
to non-food inflation and if the harvest disappoints food inflation will
accelerate as well," said Leon Myburgh, Citi's Sub-Saharan Africa
In Zimbabwe, late rains mean the total maize area planted is
35% less than it was at this stage last year, according to government figures.
"We'll pay more and we are going to import inflation
from the higher cost of food," said John Robertson, an independent
economist based in Zimbabwe.
Exporter to Importer
South Africa has been harvesting bumper maize crops but
because of export commitments, producer group Grain SA estimates it may have to
import a combined 700 000 tonnes of white and yellow maize in the marketing
year that ends on April 30.
Domestic maize prices are currently around record highs and
double what they were a year ago and Grain SA says they are now at
"import-parity" levels which means they are climbing to the global
prices paid to buy overseas.
The March white maize contract is currently fetching around
R2 680 a tonne while yellow maize is just over R2 600 a tonne.
This is worrying as inflation is slithering upward in the
region's biggest economy - and grain prices are already a big factor driving
November consumer inflation quickened to 6.1% year-on-year,
from 6.0% in October, a breach of the central bank's mandated target range of 3
to 6%. Food inflation led the way at 10.7%.
The typical South African blue-collar, unionised worker
often has several dependents to feed, so food inflation rate is a better
measure of his or her situation than the general rate.
Emerging food price pressures last year were seen behind
wage settlements far above inflation in sectors such as mining and will drive
negotiations again in 2012 when the annual "strike season" commences
"It will be double-digits demands for pay increases.
Food is a big chunk of the monthly basket of goods that unionised workers
purchase," George Glynos, managing director of financial consultancy ETM,
This will have implications for the region.
"Higher inflation in South Africa typically triggers
some spillover into inflation in the rest of its regional trading
partners," said Standard Chartered's Khan.