El Nino Brings BBQ Shortage to Drought-Stricken South Africa

  • Food inflation to accelerate to above 10% by mid-2016
  • Producers' margins squeezed by rising animal-feed costs

Barbecue-loving South Africans face higher prices for lamb chops and steaks for at least two years as the worst drought since 1992 dries up the country’s grasslands.

While farmers are currently selling and slaughtering more livestock than usual to protect grazing and generate cash for feed, a supply shortage is expected from April, which will raise meat prices then, Pieter Spies, the managing director of agribusiness GWK Ltd., said in an interview in Douglas in the Northern Cape province.

“There’s proper supply at the moment but come the second quarter of next year, there is going to be a shortage of livestock,” Spies said. “The cycle will take two years to bed down after good rains -- it could even take longer -- it all depends on how depleted the flocks will be.”

GWK’s warning on prices for lamb and mutton follows a forecast by South Africa’s Red Meat Producers’ Organization that farmers may kill 36 percent more cattle this year than planned as slaughters in the water-scarce KwaZulu-Natal province surge. Food inflation may accelerate to above 10 percent by the middle of next year, more than double the current pace, as the effects of dry weather on prices from corn to meat are being compounded by the rand’s 19 percent plunge against the dollar this year, Stanlib Asset Management Ltd. and Macquarie Group Ltd. said last month.

The company will slaughter about 800,000 sheep and 70,000 cattle at its abattoirs in the Northern Cape, which is the nation’s second-biggest ovine-farming area, Spies said. GWK has 25 percent of the broader meat market in the region, he said.

“The challenge is that the market is not ready to pay the prices at the other end,” Spies said. The producers “are under pressure, both from a retail-price perspective and the ever-increasing feeding costs.”

Local prices of yellow corn, used mainly as animal feed, have surged 55 percent since the start of the year and touched the highest since at least 1996 on Thursday. The white variety, which is the base of a staple food known as pap, has increased 67 percent.

A strengthening El Nino pattern that brings dry conditions to the sub-Saharan region has prompted the South African Weather Service to predict below-normal rainfall for the next four months. Any price shocks may hurt consumers already facing job cuts and higher interest rates, further dragging down an economy that narrowly missed falling into recession this year.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE