‘Wait and see’ for food prices in South Africa

 ·21 Feb 2024

Dry conditions in South Africa are threatening the nation’s summer crops, potentially dampening the expectations of moderating food prices.

South Africa is currently facing an El Nino period, an irregular weather pattern seen every two to seven years, where increasing temperatures in the Pacific Ocean affect rainfall on different continents, with Southern Africa commonly seeing drier conditions.

Although economists were concerned about a drought’s potential impact on already sky-high food prices, South Africa has received widespread rainfall, which has supported the planting conditions for summer crops.

Food and non-alcoholic beverages (NAB) inflation was a primary driver of increased Consumer price inflation (CPI) throughout 2023 but declined across the year from a 14-year high of 13.4% in January 2023 to 8.5% in December.

Allan Gray’s Thalia Petousis said that the upside risks to food inflation in 2024 are less raised than in 2022 and 2023 due to high base prices and the country so far being unscathed by the El Nino weather cycle.

Declining food inflation and, in turn, CPI could also push the South African Reserve Bank to cut interest rates as well.

However, outside of a few scattered thundershowers, South Africa’s interior has recently faced dry and hot conditions, with several inland provinces experiencing a heatwave over the last week.

Speaking on the Agricultural Market Viewpoint, Wandile Sihlobo, Chief Economist at Agbiz, said that the country is entering a critical crop-growing stage where flowering and pollinating are starting.

Although production conditions have been excellent, Sihlobo noted that there is still a need for moisture to improve the crop’s yield potential.

Farmers have planted a decent area of summer grains and oilseeds, and crop current conditions provide confidence in another decent harvest, but rainfall in the next few weeks is essential.

The weather over the next few weeks will also dictate if Sihlobo’s previous optimistic outlook in terms of growth and performance of the sector proves true.

He was also hopeful that food price inflation in the country would start to moderate.

Global food prices or global agricultural commodities are continuing to soften, and, over time, this is expected to extend to the South African market.

Secondly, the predicted recovery in supplies in South Africa will also help with food prices.

Sihlobo hopes to maintain this positive outlook, but it is highly dependent on rainfall in the country.

The last week of February and the first week of March are critical for summer crops, and dry and hot conditions will lead to worries over the 2024 outlook.

If there is rain, the optimistic view could well prove to be true.

Read: Divide over VAT hike for South Africa

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