African wheat buyers face higher prices

10 September 2010

11 September 2010 | Nick Martindale

Wheat buyers in southern Africa face months of higher prices after Russia decided to extend an export ban on the crop by a further 12 months, following the destruction of its harvest in wildfires.

Jannie de Villiers, executive director at the National Chamber of Milling in South Africa, said wheat prices had already increased from R2,300 ($320) to R2,700 ($376) per tonne since July as a result of the reduced supply.

He said: “Milling companies will have covered their needs for at least three months, so those increases in July will hit the milling industry towards the end of September.”

Earlier this month, riots broke out in Mozambique after protests over the rising cost of oil, wheat and bread. The price of a loaf of bread in Mozambique increased by 25 per cent, as a result of the global wheat shortage.

The UN's Food and Agriculture Organisation has called an emergency meeting in Rome on 24 September to discuss the food crisis.

Koos Ferreira, managing director of one of Namibia’s biggest wheat buyers Namib Mills, said he expected prices to increase by “not more than 10 per cent” by the end of October, and that any increases would be passed on to consumers. “Prices should not increase substantially but will settle at a higher level than the price before the Russian scare,” he said. He added that the cost of wheat also depended on other factors such as exchange rates and shipping costs.”

Charles Gombiro, procurement manager at Zimbabwe-based Lobels Bread Bakery, said his country was particularly vulnerable to world grain prices. He said: “Most industries, including most millers and bakers, finance their working capital from short-term borrowings from banks at an interest rate of 5 per cent per month. This discourages companies from operating with substantial strategic stock that would otherwise mitigate unforeseen risks.”

Kona Haque, commodity strategist at Macquarie Bank, said world prices of barley had also increased by about 25 per cent as Russia is a major producer, while corn had gone up by about 10 per cent on account of livestock producers switching from wheat to corn-based food products.

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