eBusiness Weekly
Food price inflation in South Africa has continued to shoot up despite headline inflation easing over the last few months.
The latest CPI data from Stats SA (for January 2023) showed that food price inflation hit a 14-year high at 13,4percent, despite headline inflation easing to 6.9% in the same month.
According to the Bureau for Food and Agricultural Policy (BFAP), food and non-alcoholic beverage inflation is sitting at the highest point since May 2008 and more than double the upper inflation target limit.
The sharp price hikes are also running counter to wider global trends where the FAO Food Price Index (FPI), based on the prices of an international basket of food commodities, was 3,3percent lower in January 2023 compared to January 2022, declining for the tenth successive month, resulting in a 0,8percent decrease from December 2022.
While South Africa’s food inflation was comparatively low for 2020, 2021 and the first half of 2022, it has since started following international rates more closely.
Inflation is still lower than in the EU, but is now higher than in Kenya, Zambia, Brazil, the USA and China. Compared to December 2022, decreasing food inflation rates have been observed in these countries, but not South Africa.
Why food prices are high
The BFAP identified the following factors as being responsible for persistently high food price in South Africa:
The weaker rand; persistent and escalating load shedding; hot and dry conditions in key production areas (e.g. South America); Geopolitical unrest (war in Ukraine); Supply chain disruptions; and Animal diseases.
The BFAP said that the biggest contributor to rising prices, particularly in bread and cereals, is the weakening of the rand in September and October 2022, which resulted in higher prices for imported grains and the local equivalent prices.
“There is typically a lag of around three months for commodity price movements to reflect fully in consumer product prices. December and January grain prices were slightly lower again, and there is hope that this will reflect in bread and cereal prices in the next months,” it said.
“This is an important reason why South African food inflation has not slowed to the same extent as many other countries.”
Another reason is the severe and persistent occurrence of load shedding, which is pushing up food prices across supply chains and further influences them indirectly by adding to the risks that influence the weak Rand.
“Load shedding remains a major risk that will likely see food prices in South Africa remaining higher for longer,” the group said.
Despite South Africa’s first summer crop supporting maize prices to remaining at export parity levels, the country’s market is being heavily influenced by global factors, the group said.
“At a global level, several supply shocks in various agricultural commodity and livestock markets around the globe continue to contribute to rising food prices, filtering through to the South African food market,” the BFAP said.
“The current outbreak of Highly Pathogenic Avian Influenza (HPAI) is the worst to date in Europe and has spread widely through North America.
More recently, cases have also been recorded in several South American countries — including Argentina, but not yet in Brazil,” the BFAP said.
Combined with reduced output in Ukraine amid ongoing war, HPAI has been a major factor that has driven poultry prices up rapidly through the second half of 2022, though weaker demand amid consumer spending constraints in many parts of the world has supported some modest declines over the past three months.
In South Africa, these declines have generally been offset by the depreciation in the exchange rate: From July 2022 to February 2023 the exchange rate weakened by 12,5percent. As a result of these disease challenges meat supply in general is weaker globally, as producer margins have been under prolonged pressure due to high feed prices.
In the current weaker demand environment global meat prices are not expected to rise further in the short term in the absence of further major supply disruptions.
One food group that has not been hit as hard is fruit production, the BFAP said.
Here, additional fruit is being channelled into the local market due to various market conditions. This resulted in lower consumer prices.
Conversely, however, vegetable prices have increased, due largely to weather-related challenges in key production regions, and strong consumer demand for more affordable vegetables in light of persistent spending power constraints.
“In some areas there has also been reduced plantings of some vegetables due to extreme increases in input costs, the additional cost of alternative energy sources to irrigate, and the concerns regarding reduced spending power and consequent risk of stock build-up at the municipal markets,” the group said.
On the weather front, while global agricultural commodity prices have been trending downwards or in some cases sideways, persistently dry weather conditions in South America remain a key factor to watch with respect to the evolution of markets over the coming months, the BFAP said.
“With the weakening and expected neutralisation of the current La Nina phenomenon, weather conditions and resultant supply from the Northern Hemisphere could improve later in 2023.”— Business Tech
