7 February 2013

Namibia: Rising Food Prices and Your Budget

Windhoek — Namibians will have to dig deeper into their pockets to meet the rising cost of food.

According to data compiled by First Capital since 2007, food prices in Namibia have risen significantly since 2010 and this trend continues in 2013.

The squeeze on many consumers' finances will continue for at least the next decade as many experts warn food prices will continue to increase significantly.

Rising food prices will take the annual food bill for the average family to triple over the coming years, heaping further pressure on already overstretched household incomes.

In this article I will share with you why many economists forecast high food prices in 2013.

Rising Global Food Prices

Namibia is a net importer of most of the food you buy from different supermarkets and grocery stores and as a result, rising food prices in global markets will be transmitted into Namibia automatically.

This situation could be worsened if the Namibia dollar depreciates against currencies of its trading partners, as is the case currently.

Food costs are going up in the USA as a direct result of the drought affecting the country and according to a latest report from Rabobank, volatility in agriculture commodity prices looks set to continue into 2013.

According to the U.S. Department of Agriculture, food prices are expected to rise in 2013 because of the terrible Midwest drought in 2012 that withered crops in the field.

Since it usually takes several months for these commodities prices to translate to the food you buy, most of the drought's effect will occur in 2013.

Historically Low Global Food Reserves

In addition to drought and demand conditions putting upward pressure on food prices, the United Nations Food and Agriculture Organization (FAO) warned towards the end of 2012 that world grain reserves are so low that severe weather in the United States or other food-exporting countries could trigger a major hunger and food crisis.

The USA, which experienced record heat waves and droughts in 2012, now holds in reserve a historically low 6.5 percent of maize stocks, the FAO warned, with prices rising to record levels during the crop failure.

Food consumption has exceeded food production over the past few years and as a result many countries have run down reserves from an average of 107 days of consumption in 2002 years ago to under 74 days recently.

While many economists don't believe rising prices will trigger the kind of food price crises seen in 2008 and 2011, when the world faced structural deficits in wheat and rice, they are concerned that high prices are driving the world's poorest people out of their ability to feed themselves and put pressure on the budgets of many households.

Namibia Food Price Situation

As mentioned above, Namibia imports the bulk of its foodstuff from global markets, heavily dependent on imports from South Africa.

South Africa in turn is also heavily dependent on imports from global markets.

While South Africa used to be a major producer of agricultural food commodities, the country has and continues to lose market share to many global food producers and is also slowly becoming dependent on imports of food, which in turn is exported to other countries including Namibia.

Namibia will therefore import the expensive food from global markets through imports from South Africa.

Production of food in South Africa was affected by labour unrest especially on farms that affected farm production significantly.

Add to this the rising farm production costs, such as high oil/fuel prices, depreciating currency, rising wages and droughts. The impact of all these factors translates into reduced production far below consumption, putting pressure on food prices.

In Table 1 we highlight average prices of selected food items that are common in the shopping basket of many consumers. Prices in this table are average prices compiled from the five large super arkets in Windhoek. While we observe a decline in prices of rice and milk between 2010 and 2013, all other food items experienced substantial price increases since 2010.

If you want to see why your budget has been squeezed for the past years, study this table carefully and you will find out that most of the items in your shopping baskets increased in prices in excess of the increase in the price of your salary.

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