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Shock for food prices as wheat futures rocket

Consumers, already battling to meet ever-higher food prices, are in for yet another shock as the price of wheat hits a new record high.

The price of wheat on the JSE futures exchange broke through R4000 a ton yesterday to a new record on supply concerns, giving impetus to further increases in the price of bread.

After hovering around R3900 a ton for some time, the future prices for delivery in May broke the psychological barrier of R4000 a ton and the price for delivery in July closed at R4000, although it was as high as R4030 during the day yesterday.

Wheat prices have now more than doubled from R1878 a ton a year ago, and further increases are expected.

Milling and bread companies warned yesterday that with the steep hike in the price of wheat, further increases in the price of bread were inevitable.

While there has been an outcry in SA, bread prices here still lag behind global prices, with bread in the US, UK and Australia costing as much as R15 a loaf, according to the National Chamber of Milling.

Supply is constrained by a range of factors, said Jannie de Villiers, executive director of the chamber. Wheat planting has been curtailed by drought, and farmers worldwide have switched to more lucrative maize to feed the world's biofuels frenzy, causing a considerable reduction in hectares planted to wheat. Moreover, growth in China and India has led to increased beef consumption, further stoking the demand for wheat.

Power cuts hit mills

The supply situation might ease somewhat when the northern hemisphere harvest season started in June-July, he said.

“We are facing quite a dilemma,” De Villiers said. “It is a challenge to keep the mills going, given the difficulty to procure enough good quality wheat at these high prices, combined with the power cuts we have experienced lately.”

According to figures from the South African Grain Information Service, better qualities of wheat from the US are now trading at R7250 a ton, while Canadian wheat costs R6766 a ton to import. Cheaper German wheat can be bought for R4200 a ton.

However, De Villiers noted that some net exporting countries were now opting to close their markets in a bid to ensure food security and ease food inflation. Argentinean wheat, for instance, is at R3640 a ton, but the Argentinean government has opted not to sell current wheat stocks.

As a net importer of wheat, SA is, however, unable to shield itself against price increases. The country produced 1,77-million tons of wheat last year, but consumed 2,8-million tons.

“In the past we (SA) relied on free trade for food security, but the world has changed. The message that the government needs to hear is that there has been a fundamental shift globally and this needs to be addressed in policy. Farming has for long been treated as the black sheep in policy making,” De Villiers said.

Rise just a ‘question of time'

Tiger Brands corporate affairs executive Jimmy Manyi said yesterday a price increase was inevitable; it was “just a question of time”.

Rising wheat prices meant the company's under-recovery would widen and add to the pressure it was experiencing.

Tiger Brands was attempting to contain price increases and should have hiked the price of bread again this month, but was holding back, Manyi said.

A price increase of 40c a loaf last month had unions crying foul. Bakers have been under fire after allegations of price-fixing, which resulted in Tiger Brands paying R99m for its role in the scandal. The Competition Commission is still investigating allegations of price fixing in the baking and milling sector.

Manyi said Tiger Brands was seeing margins in its bread division being “eroded to the core”.

Pioneer Foods milling and baking executive Tertius Carstens said Sasko was determining what steps to take, but it was clear that a “significant” but unspecified price increase was imminent.

Source: Business Day

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