The quest for new sources of energy away from traditional petroleum products has in recent times led to the development and use of biological material (biomass). As the name suggests, biofuels are developed from organic materials. Thus an increase in the price of oil has also increased demand for biofuels, resulting in a high correlation between agricultural commodities prices, particularly maize, and energy prices.

While escalating petroleum prices are one reason for the quest for other sources of energy, this is not the only factor. The search for alternative sources of energy was underscored by environmental concerns and energy security concerns in the US and European Union countries about their reliance on oil from a few countries.

This brief explores the impact of increased biofuels production on maize prices, how the rise in maize prices affected low-income groups in SACU, and whether and when exportable maize surpluses are likely in South Africa.

The analysis suggests that governments should implement policies to cushion poor households from the adverse effect of maize price increases. Two types of policy responses are in order:

as a net food exporter, South Africa, which is a major source of maize supplies in the region, needs to encourage maize production not only at commercial level but also for subsistence purposes. Programmes such as the Agricultural Starter-Packs in South Africa, whereby government provides poor households with agricultural implements, should be encouraged. This initiative has proved successful in community-based co-operatives. In countries where there are no such programmes, South Africa’s model could be adopted. Knowledge-sharing among SACU countries should be encouraged

while deregulation of the maize market is likely to hurt farmers, who are used to relatively high prices, it will introduce competition in the sector and thus lower prices to the benefit of poor households. It is worth noting that a thorough cost-benefit analysis on the effects of deregulation of the sector needs to be conducted