(Nasdaq) – South Africa, the continent’s biggest maize producer and hard hit by an El Nino-triggered drought last year, is considering a strategic grain reserve as a buffer against future shortages, its agriculture minister told Reuters.
Neighboring countries such as Zimbabwe and Zambia have such reserves, but it would entail a significant policy shift in South Africa, where commercial agriculture is market driven and the state does not act as a buyer and holder of crops.
A strategic grain reserve usually involves the government buying crops and taking responsibility for their storage until they are needed to make up for shortfalls. “Yes, we are thinking about it,” Agriculture Minister Senzeni Zokwana told Reuters late on Tuesday when asked if a grain reserve was being considered.
“It is one of the things that the inter-ministerial committee on drought should look at,” he said, referring to a cabinet committee set up in 2015 to look at ways of mitigating the drought. Zokwana did not go into specifics, such as budget allocations for such a project, which would be difficult in South Africa’s strained fiscal environment after damaging ratings downgrades.
In major global grain producer Russia, which has a strategic grain stockpile, budget cuts caused by the financial crisis in recent years have made it difficult for the agriculture ministry to build up the reserve and to service the storage of the current stock.
South Africa will likely reap 14.54 million tonnes of maize in 2017, almost double last year’s harvest and its second largest ever after good rains returned, the government’s Crop Estimates Committee (CEC) said on Tuesday.
This is more than 40 percent more than the roughly 10.5 million tonnes South Africa typically consumes of the crop, the staple of lower-income households which are a key political base for the ruling ANC and were hard hit last year by rising food prices and inflation linked to the drought.
But the El Nino weather pattern, which faded in May of 2016, may reform again around September, just ahead of South Africa’s maize planting season, according to a number of national and global forecasts.
“If we have a bumper crop this year how do we make sure that we have some grain that is reserved for darker days? El Nino is going to be with us, we have to adapt,” Zokwana said, adding that commercial farmers should also hold some stocks.
“The challenge we are faced with as a country is that we need to engage with the private sector and say don’t sell all you have because the El Nino may be on the door,” Zokwana said. Grain SA, South Africa’s largest grain producer group, said in response to questions from Reuters that it was “not in favour of government carrying a strategic stock.
The market is already working on such signals of a potential El Nino.” Some farmers and other market players may be tempted to hang onto stocks because prices have plummeted with the abrupt change in weather. But some may also need to sell as much as they can to service debts and other costs.
The July white maize contract was 1.25 percent higher on Wednesday at 1,862 rand($142) a tonne, around 65 percent lower than record peaks of more than 5,000 rand a tonne scaled early last year during the drought.
El Nino is a warming of ocean surface temperatures in the eastern and central Pacific that occurs every few years, with global consequences. In Africa it often brings excessive rains to the east while the southern cone gets parched.
