Record high wheat prices globally are forcing consumers in Southern Africa to dig deeper into their pockets: the price of bread has almost doubled since the beginning of the year, and according to the UN's Food and Agriculture Organisation (FAO), have already caused food riots in some parts of the world.

Wheat and maize prices have been at their highest in the past few months: the price of yellow maize doubled from an average of US$88 per metric tonne (mt) in 2000 to $177 per mt in February 2007, while the price of wheat rose from an average of $119 per mt in 2000 to $277 per mt in August 2007.

The combination of higher export prices and soaring freight rates has pushed up domestic prices of bread and other basic foodstuffs in importing developing countries, hitting the group of Low-Income Food-Deficit countries particularly hard, said Paul Racionzer, of the FAO's Global Information and Early Warning System.

A drop in production has been reported in major exporting countries – which are also among the leading stockholders – notably the United States, where stocks are forecast to sink to a 10-year low of 11 million mt, as well as in Australia, Canada and the European Union (EU), said the FAO's Crop Prospects and Food Situation report for October.

"Among other countries, sharply smaller stocks are forecast for Egypt, Morocco, Tunisia, Turkey, and nearly all major wheat producing countries in the CIS [Commonwealth of Independent States]."

Racionzer said lower wheat production in major exporting countries was expected to result in a drawdown of at least 14 million mt in world inventories to 143 million mt, the lowest in 25 years. Consequently, the price of wheat has shot up to an all-time high of $343 per mt, compared to $208 per mt at the same time in 2006.

"Those high prices have spilled over to other markets, impacting on the prices of most other cereals," he commented. "Higher grain prices are wearing through the food chain, increasing the cost of many basic food items, which has already led to social unrest in some countries such as Uzbekistan, Yemen and Morocco."

Drought-hit

Southern African countries are net importers of wheat, and in Namibia and Botswana the price of bread has almost doubled since January. But the FAO is particularly concerned over the impact of high wheat prices on Swaziland and Lesotho, which had their worst-ever harvest. "The cost of importing the wheat will put a huge strain on their economies," said James Breen, the FAO's Regional Emergency Agronomist.

Swaziland's annual cereal production this year was 22kg per head, while Lesotho produced 38kg per head, against an annual requirement of 180kg per head in both countries, according to the report on a joint FAO and World Food Programme crop and food supply assessment mission.

Unable to access maizemeal, their staple food, the Swazis and the Basotho have had to buy bread, which has become at least 20 percent more expensive since the beginning of 2007.

In South Africa the cost of wheat is 125 percent higher than it was in 2005, a local magazine, The Farmers' Weekly, pointed out. Phumzile Mdladla, who heads the Southern Africa office of the USAID-funded Famine Early Warning Systems Network (FEWS-NET), said the price of wheat had almost doubled, from $246 per mt in October 2006 to an average of $455 per mt last week, which was higher than the international price.

Earlier in the year, political organisations in South Africa suggested fixing the price of bread, but this was ruled out by the government. "Food security has two legs, namely availability and affordability," said Jannie de Villiers, head of the South African Chamber of Baking, the national millers' association, who welcomed the government’s response.

"The free market in agriculture has proven very successful in assuring the availability of food to all South Africans. We have, however, in the past ten years of deregulation experienced two cycles of very high food prices, which seriously impact on the affordability of food to especially the poor and vulnerable groups in our communities."

The industry had not only had to contend with sharply higher wheat prices, but ever-increasing fuel costs. "The distribution cost constitutes almost a third of the total cost of baking and distributing bread," said de Villiers. "We are doing our utmost to delay passing on these huge spikes in our wheat and flour prices."

The outlook

According to the FAO's Racionzer, production could improve next year. "In the United States, conditions are generally favourable for fieldwork, and although planting has got off to a slower start than normal, early indications all point to the likelihood of a record area." Winter wheat crops for harvest in 2008 are already being planted.

The EU has removed its 10 percent obligatory set-aside requirement for 2008, which could return up to an estimated three million hectares of arable land to production for the season, he added. Under the requirement, producers had to set aside a defined percentage of their declared areas to limit cereal production in the EU.

In a press release in late September, the EU said removal of the set-aside should increase the 2008 cereals harvest by at least 10 million mt; intervention stocks have shrunk from 14 million mt at the beginning of 2006/07 to around one million mt at present.

Racionzer said, "Early indications from the large producing areas in eastern Europe also suggest that farmers have intentions to plant larger wheat areas if weather and inputs allow."

However, based on the latest forecasts for world production and utilisation in the FAO's latest Crop Prospects and Food Situation report, global cereal stocks, including wheat, are expected to stand at 420 million mt by the close of the seasons in 2008.

This is unchanged from the reduced opening levels, and only three million mt above the 20-year low in 2004. "The food price situation is not going to improve any time soon," said the FAO's Breen.