What to expect for food prices in 2023

The latest food inflation brief from the Bureau for Food and Agricultural Policy (BFAP) shows that food prices in South Africa remain at elevated levels and that consumers should expect higher prices going into next year.

Reflecting the higher levels of food inflation recorded in October 2022, the BFAP food basket was 12% higher than its previous report, with the thrifty health food basket coming in at R3,298 per month, up R10 from September, and up R367 from October 2021.

Oils and fats had the highest price increases year-on-year with inflation at 25.7%, followed by bread and cereals (19.5%), meat, milk, chees and eggs (10.5%) and fish (10.3%)

Month-on-month, however, fruits saw the biggest jump at 4.1%.

According to the BFAP, some price hikes were softened by movements within each category.

High inflation on maize and wheat-based foods was dampened by significant deflation in rice prices, while high inflation on several vegetables was dampened by significant deflation in potato prices, low inflation on some vegetables (broccoli, pumpkin, cucumber, and carrots) and deflation on some vegetables (sweet potatoes and cauliflower).

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High inflation on some fruits was dampened by significant deflation in the prices of bananas, avocados and papaya. High inflation on coffee, tea and fruit juice was dampened by low inflation on soft drinks and mineral water.

On a more global outlook, the group said that food inflation in South Africa was lower than in the EU, Kenya and Zambia but higher than in Brazil, the USA and China.

These were the biggest price shifts. Where inflation was recorded above 10%:

  • Vegetables: onions, peppers, cabbage, tomatoes, lettuce, spinach, beetroot, canned mixed vegetables, various frozen vegetables;
  • Fats/oils: plant oils, mayonnaise;
  • Pork: ham;
  • Starch-rich foods: wheat flour, brown bread, maize meal, instant noodles, white bread, pasta, breakfast cereals, baked goods;
  • Beverages: coffee, tea, fruit juice;
  • Fruit: apples, pineapples, oranges;
  • Beef: T-bone, corned beef, offal, mince, chuck, brisket, stew;
  • Legumes: canned baked beans;
  • Chicken: fresh whole chicken, frozen non-IQF chicken portions;
  • Dairy: milk, gouda cheese, powdered milk, sour milk;
  • Sugar-rich foods;
  • Eggs;
  • Other: whiteners, salt, tomato sauce, soup powder, chutney;

What’s moving prices right now?

According to the bureau, headline inflation for October surprised to the upside, propelled by further price increases in food (12% year on year) and fuel (30.1% year on year).

Regarding food, inflationary effects are still driven by agricultural commodities such as maize, wheat, soybeans, and sunflower oil.

“Local maize prices breached R5000 per ton in the third quarter of 2022 as the ZAR weakened to above R18.00 to the USD, and global prices continued their upward trajectory. The latter results from lower quality and yield for certain Northern hemisphere maize producers, combined with indications that key Southern hemisphere grain-producing countries could again suffer from dry conditions during the current season.”

Ongoing geopolitical issues between Ukraine and Russia are also adding to the volatility in agricultural markets, as trade from this region is unpredictable, such as when Russia announced that current agricultural export agreements would be suspended, only to business as usual again, the group said.

Ongoing inflationary pressures in grains and oilseeds have also resulted in cost pressures in meat.

While beef prices have stabilised, albeit at around 12% higher than the corresponding time last year, chicken prices have increased by almost 10% year-on-year due to the weaker rand, higher production costs and the worst Avian Influenza outbreak to date in the Northern Hemisphere.

“The effect of tariffs, and increased processing, distribution and sales costs should also not be discounted, with the significant rise in fuel prices and the high incidence of load shedding pushing consumer prices of food higher,” it said.

What to expect in 2023

Looking to 2023, the BFAP said that food inflation would likely remain high over the next three months as the full effects of persistently increasing commodity prices and weaker exchange rates filter through to retail markets.

“We expect that food inflation could peak in the first quarter of 2023, after which the higher base effects apparent from March 2022 will result in smaller inflationary effects during the rest of 2023,” it said.

Two variables that should be monitored to gauge inflation rates during 2023 are global maize prices and the ZAR/USD exchange rate.

“In terms of the former, a reduction in prices based on a favourable Southern hemisphere crop could go a long way in curbing Bread and Cereal inflation during the first half of 2023, whilst this could also spill over into meat prices by the second half of the year,” the group said.

Regarding the ZAR/USD exchange rate, analysts note that the ZAR is undervalued and could strengthen to levels of R16.50 in the first quarter of 2023, which would be good news for food prices locally.

Read: Bad news for food prices in South Africa

Artmotion S.Africa

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