Lifestyle

30% food price shock warning for South Africa

The Bureau for Food and Agricultural Policy (BFAP) has published its latest food inflation brief, warning of possible food price shocks for South Africa in 2023 if local crop production is thrown off course by any unforeseen events.

The group noted that even though food inflation in South Africa remains high – and will likely remain elevated in 2023 – local prices have been kept lower than international markets due to surplus local production.

“South Africa continues to trade at export parity for key commodities such as maize, sunflower, soybeans and canola,” it said.

“This essentially means that surplus production is keeping local prices low and that inflationary trends are driven by global prices, the weak exchange rate and growing costs of logistics and processing of products, such as transport, electricity and wages.”

However, the group warned that under a scenario where South Africa does not produce surpluses of these crops, prices would rise to import parity – this would lead to price increases of at least 30%, it said.

“(This) would cause a major shock in domestic food security among the poorest households, which could result in a shock to the overall socioeconomic stability of the country.”

Web Search Engine

For now, the risk of this happening is not apparent, the BFAP said.

“The weather forecast for the summer cropping season remains favourable; therefore, BFAP’s Baseline projections indicate that farmers could plant the largest area under summer crops in twenty years, despite the sharp increase in inputs costs.

“Hence, if favourable weather conditions persist, we are expecting prices to continue to trade at export parity.”

But even the favourable outlook comes with a caveat – being that the actual level of export parity prices will be determined by factors outside the control of our agricultural sector.

“The range of commodity price trajectories that could play out over the coming months is quite wide, and for now, the only certainty related to food prices and inflation is that we are in for a volatile time,” it said.

For 2023 specifically, exchange rate movements and the progression of the Southern hemisphere crop, mainly South America, will be key in giving commodity prices and local inflationary figures direction.

In terms of exchange rate dynamics, global recession fears and tighter monetary policy are likely to keep the dollar strong. Load shedding intensity would, in turn, be a key local factor that will determine at which levels the local currency trades, the BFAP said.

“A key factor to note is that although there are concerns about production conditions for South America, an actual supply shock is yet to occur. More favourable conditions than anticipated could
therefore result in substantial commodity price declines, which would ease global and local inflationary pressures.”

Food price pressure

Inflation data published by Stats SA earlier this month showed that food price inflation in the country accelerated in September to 11.9%.

The main inflation contributors were Bread and Cereals (3.6 percentage points), followed by Meat (3.1 percentage points) and Milk, eggs and cheese (1.3 percentage points).

The BFAP noted that the major driver behind South Africa’s double-digit food inflation is the surges in global grain and oilseed prices, exacerbated in the local context by a weakening exchange rate.

“As (previously noted), surges in commodity prices take between two to three months to show up in associated retail food prices; hence the Bread and Cereal inflation of 19.3% in September is the result of high grain commodity prices in July. This was 34% higher than the corresponding period in the previous year.

“Although local maize price increases lost some momentum during August due to easing global maize prices, they gained renewed momentum in September on concerns regarding the size of the maize harvest in the Northern hemisphere,” it said.

This is likely to keep Bread and Cereal inflation and food inflation in general at elevated levels for the rest of 2023. High grain prices are also likely to have cost-push inflationary effects in livestock sectors and could result in persistently high food inflation during the first half of 2023.

The BFAP healthy food basket saw its total increase by R18 between August and September 2022 to R3,288, up R432 from the same time last year.

The following foods were recorded as more than 10% higher than in 2021:

  • Beef: offal, T-bone, rump steak, fillet, brisket, mince, stewing beef;
  • Vegetables: tomatoes (fresh), peppers (fresh), onions (fresh), cabbage (fresh), pumpkin (fresh), broccoli (fresh), beetroot (fresh), canned vegetables, frozen vegetables;
  • Fats/oils: sunflower oil, mayonnaise, margarine
  • Non-alcoholic beverages: fruit juice, coffee, tea
  • Starch-rich foods: wheat flour, super maize meal, brown bread, instant noodles, white bread, pasta, various baked goods, breakfast cereals
  • Pork: ham
  • Fruit: apples, pineapples, oranges
  • Legumes: tinned baked beans
  • Chicken: whole fresh, frozen non-IQF portions
  • Other foods: whiteners, salt
  • Sugar-rich foods: sweets, chocolates, ice cream
  • Dairy: flavoured milk, condensed milk, cheese spread, cream, cheddar cheese, gouda cheese, milk
  • Eggs

Read: Big fast food price hikes coming for South Africa

Artmotion S.Africa

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button