In good and bad economic times people have to eat, a reality that leads many investors to view food companies as safe havens. This is not always the case. Just how vulnerable some food companies’ profits can be was hammered home by the recent drought. The result of an extreme El Niño event, it was the worst SA has experienced since 1904, when records were first kept. SA faced a huge decline in maize production. Prices went into orbit, with the white maize price in early 2016 standing at twice the level of a year earlier. Somewhat perversely, government added more cost pressure in August 2016, when it increased the import tariff on wheat by 30% to R1,591.40/t, its highest level yet and 10 times the level in 2014. SA imports about 70% of its wheat needs. Among the companies worst hit is Pioneer Foods, which relies on essential foods such as maize meal and bread for about 60% of revenue and operating profit in a normal year. Maize makes up about 20% of group input costs and wheat about...

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