Warning over meat prices in South Africa

The Bureau for Food and Agricultural Policy (BFAP) has published its food inflation brief for July 2022, highlighting the food items that have recorded the biggest price hikes in South Africa.

While food price inflation outstripped headline inflation again in July, the group said that it expects price increases to slow towards the end of the year.

However, if measures put in place to curb foot and mouth disease in cattle are extended, meat prices could shoot up, it said.

The BFAP brief provides an overview of food inflation dynamics, its associated causes, and the cost of basic healthy eating each month.

It features a Thrifty Healthy Food Basket (THFB), which measures the cost of basic healthy eating for low-income households in the South African context. The basket consists of a nutritionally balanced combination of 26 food items.

The methodology considers national nutrition guidelines, typical food intake patterns of lower-income households, official Stats SA food retail prices, and typical food requirements for a family of four – two adults and two children.

For July, the THFB was recorded at R3,261 a month, up 2.4% from June’s basket and up 11% from the basket in 2021.

Food expenditure as a percentage of total income spent on food increased to 31.1%, from 30.4% in June, the BFAP said. This is based on a dual -minimum-wage income.

The group highlighted the following foods that saw inflation above 10% in July:

• Vegetables: spinach, broccoli, cauliflower, beetroot, onions, cucumber, tomatoes, lettuce, cabbage;
• Fruit: oranges, avocados, apples;
• Fats/oils: Vegetable oil, margarine;
• Legumes: canned baked beans, dried beans;
• Pork: ham, bacon;
• Beverages: Ceylon/black tea, coffee, fruit juice;
• Starch-rich foods: wheat flour, super maize meal, brown bread, pasta, white bread;
• Beef: T-bone, brisket;
• Canned pilchards.

The following foods saw inflation more muted but still above the Reserve Bank’s target range, over 6%:

• Mutton/Lamb neck;
• Beef: chuck, rump steak, mince, offal;
• Dairy: yogurt, milk, cheese;
• Chicken: IQF portions, giblets;
• Peanut butter.

Inflation for food and non-alcoholic beverages reached 9.7% in July, according to the latest data from Stats SA.

“This is comparable to levels last recorded in 2016/17 – which was due to the widespread drought in South Africa. The high levels of inflation are a culmination of numerous factors in global commodity and money markets,” the BFAP said.

The effect of the Russian invasion of Ukraine in late February, which caused prices for grains and oilseeds to surge during March and April, is likely still affecting local bread and cereal prices, which recorded inflation of 13.4% in July, it said.

This is because price shocks in local grain and oilseed markets typically take three to fourth months to fully transmit to retail prices, “and although global prices for these commodities have eased over the past weeks, a weaker exchange rate and persistently high global shipping costs are keeping local commodity prices elevated,” the group said.

Continued high grain prices are also affecting prices in the meat complex, where feed is a major cost driver, with inflation recorded at 9.4% for meat, it said.

“Here, slaughter numbers for June are down almost 3% year on year for cattle, and this occurred from a base that already recorded low slaughterings in 2022. Although slaughter statistics for July are not available yet, this trend is expected to have continued.”

Poultry prices continued to rise, following global markets, which are experiencing persistent supply constraints in the Northern Hemisphere amid the continued spread of Avian Influenza.

Vegetables also recorded substantial inflation of 8.3%.

“This is the result of two factors at play in South Africa: The first is wet and cool weather which affected yields for key vegetables over the past months. Secondly, consumer demand is also firm as certain vegetables serve as a possible substitute for high staple food costs, such as maize meal,” the BFAP said.

Good news – with a warning

Many economists and analysts believe that food price inflation has likely peaked and will likely slow over the next few months.

“Our view is that food inflation is close to peaking – if the July figures were not at the peak already. The reason for this view is that commodity prices were higher in the latter half of 2021, which would result in lower base effects,” BFAPsaid.

“This, combined with easing global commodity prices, and short-term outlooks for the exchange rate suggesting that the rand could trade at average levels of around R16.50, could result in food prices losing momentum.”

However, there are still risks at play that could keep food prices high, the BFAP said.

One upside risk is the recent ban on cattle transport in an attempt to curb the spread of foot and mouth disease, which was instituted in the third week of August.

“Any extension of the initial three-week period could limit red meat availability towards the end of the year and during the festive season. If this is the case, meat prices would likely be a key contributor to food inflation during November and December, and we could see food inflation figures gaining momentum again,” the group said.

Other risks include crop quality issues and possibly lower yields due to hot and dry conditions in the Northern hemisphere, which could add to global price pressures towards the end of the year.

Read: The price tag on these 8 food items in South Africa vs a year ago