China's appetite puts pressure on food prices
Gonna Bust Up Exxon's Crime Ring
SOUTH AFRICA
Local inflation outlook may deteriorate as Asian giant's economy
surges
China's appetite puts pressure on food prices
March 27, 2007
By Ethel Hazelhurst
Johannesburg - Surging economic growth in China is starting to put
pressure on global food prices.
This comes at a time when a volatile rand, resurgent oil prices and
rising local maize prices are creating concerns that the domestic
inflationary outlook could deteriorate.
South Africa's problems must be seen in the context of a longer-term
structural change in global food supply and demand, said Michael
Power, a strategist at Investec Asset Management.
"China, which used to be self-sufficient, is importing grain not just
to put on the plates of its 1.4 billion consumers, but as feedstock.
Already 67 percent of global grains are used as animal feed, so
surging demand for chicken and beef out of China is a significant
development," he said.
"Demand for beef and chicken in China is growing at 20 percent a year.
And meat is very grain intensive," he said. "It takes 9kg of grain to
produce 1kg of beef."
Demand from the rising Asian giant has already created problems.
Power pointed out that India had banned food exports, Mexico had
tortilla riots and Argentina had restricted exports to surpluses.
Another factor to take into account is demand for grain to make
biofuels.
"Global stocks are also very tight because of an increase in the
production of ethanol from maize, particularly in the US," said Sakkie
van Zyl, agricultural economist at Grain SA. "The ratio of global
stocks of maize to projected demand is at the lowest level ever."
In South Africa, drought conditions in parts of the country have
pushed prices up sharply over the past few months.
Jim Rankin, a consultant to agricultural machinery businesses, said
the price of yellow maize was about R1 950 a ton, up from R1 500 in
November, while white maize was about R2 000 a ton from R1 450.
The extent of the drought damage would not be known until harvesting
took place between May and August, Rankin said.
February inflation data, due tomorrow and on Thursday, will be an
indication of how well the economy has absorbed pressure from fuel and
food prices, and rand weakness.
But when the Reserve Bank's monetary policy committee (MPC) meets on
April 11 and 12, it will have to consider whether global and domestic
conditions are looking more threatening than they did at its last
meeting on February 15.
On that occasion, the MPC left the bank's official repo rate unchanged
at 9 percent, after a 200 basis points increase last year. It
projected that the bank's benchmark inflation measure, CPIX (the
consumer price index minus mortgage rates), would not exceed the
ceiling of its 3 percent to 6 percent target range.
The next interest rate decision hinges on whether the forecast has
been revised upwards.
The rand, at about R7.20 to the US dollar yesterday, was close to the
level on February 15. But this follows a dip towards R7.50 earlier in
the month after a shakeout in global stock markets caused fears about
emerging market currencies. And, though stock markets are recovering
globally, risk aversion is still a factor to be taken into account.
Benchmark oil prices, which were well over $60 a barrel yesterday,
rise and fall on geopolitical tensions, so it is difficult to discern
an underlying trend. The central bank will have to take account of
conditions prevailing at the time.