Wednesday, October 21, 2020

Poor performance of Rand could affect Wheat Prices in Botswana

The President of the Botswana Millers Association Nkosi Mwaba has hinted that prices of bread could radically go up soon due to the rising cost of importing wheat into the country. The rise in the costs of importation of wheat has been attributed to the recent disappointing performance of the South African Rand, the cost goes up.

Mwaba explained to Sunday Standard that Botswana buys wheat from overseas in US Dollars and before it arrives in Botswana it makes a stop in South Africa which therefore means that when Botswana pays for it. 

“It does so in Rand. In other words South Africa sources wheat on behalf of Botswana. Due to the weakening of the Rand against the US Dollar it means that South Africa experiences an increased cost of its imported goods. This increased cost is then passed on to Botswana”

Mwaba indicated that since September last year the price of wheat has risen by atleast 25 percent. Its effect to the consumer, he said, is that the price of bread is as a result expected to go up by 5 to 15 percent. He alerted consumers to “brace for a bit of a tough time ahead.” 

The upside to this imported price hike, he highlighted, is that the strength of the Pula to the Rand is cushioning the impact. Unlike white maize meal, which he had earlier warned that consumers will experience its price sweep, wheat on the other hand is not as affected by the severe drought than white maize meal. 

Botswana buys wheat through the South African Futures Exchange (Safex), which manages price risk and market exposure in the South African agricultural markets. “Botswana as a net importer will always be subjected to Forex movements,” Mwaba said this week.          

Responding to how the local market is responding to this situation, Mwaba cited that not much can be done because “anything can happen with the Rand.”   

For the past seven months the world has been watching the South African currency, Rand, become a crisis spectacle. The Rand’s value is reported to have plunged by about 26 percent since June last year. It reached a record low of R17.9950 to a US Dollar earlier this year following a sustained decline. It is also predicted that the Rand will for the rest of this year remain under strain with the likelihood of slipping further down. What does the South African Rand have to do with the price of bread in Botswana? One major reason: The economic make-up of Botswana. Botswana does not produce a significant portion of food that it consumes and in order to ensure people have access to food it must buy from countries that produce such food. South Africa is an example of such countries, it is as a matter of fact one of Botswana’s biggest buying market. This makes Botswana a net importer of food. In practice, it should currently be much cheaper for Botswana to buy goods and services from its neighbouring country because the value of Pula is stronger than that of the Rand, but the dynamics are different when it comes to goods such as bread. Botswana does not buy bread from outside but it does however buy the raw material that makes it, which is wheat. 

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