Food price relief for South Africa – but there could be trouble ahead

 ·26 Jul 2023

South Africa’s food inflation should continue to decline, despite new risks facing agriculture in South Africa.

According to Stats SA, Consumer Price Inflation (CPI) cooled from 6.3% in May to 5.4% in June – the lowest reading since 5.0% in October 2021.

Crucially, annual inflation for food and non-alcoholic beverages – one of the main drivers of high inflation levels – continued its downward trend, dropping from 11.9% in May to 11.0% in June.

However, there have been increased risks in global agriculture recently, with India banning rice exports and Russia terminating the Black Sea Grain Deal, which allowed for grain and oilseed exports from Ukraine.

That said, Wandile Sihlobo, the Chief Economist of the Agricultural Business Chamber of South Africa, said that food inflation should continue to decline for the rest of the year.

Sihlobo said that the decline in red meat prices, which have softened at farm levels, should continue in the retail for the coming months.

Meat prices have recently seen deflation in South Africa, with weaner calf prices (-5%), pork (-2%) and poultry (IQF pieces, -1%) all dropping, according to the Bureau for Food and Agricultural Policy (BFAP).

Although fruit prices are no longer declining, Sihlobo said that they should remain affordable due to improved domestic supplies.

He added that the 9.5% year-on-year drop in the “oil and fats” for June aligns with the softening price trend seen globally, with South Africa still importing its palm oil.

Concerns

He said that there are still risks to “bread and cereals” product prices. He said that South Africa imports millions of tonnes of rice and wheat imports, and the global disruption in trade of these items could affect global prices, including in South Africa.

However, he said that South Africans should not be concerned as there have been no notable increases in international, domestic maize and wheat prices.

“Whether these price gains are sustained will depend on the Black Sea Grain Initiative developments and India’s rice exports. Importantly, there is roughly a lag between three to five months between the price changes at farm and retail levels,” he added.

“Hence, I expect the prices of grain-related products in the inflation basket to maintain a softening path regardless of the recent disruption in grain prices.”

Climate relief

The economist has also downplayed concerns over South Africa entering an El Nino period.

El Niño is an irregular weather pattern that is seen every two to seven years, where rising seawater temperatures in the Pacific Ocean affect rainfall on different continents, with Southern Africa generally seeing drier conditions.

David Rees, Senior Emerging Markets Economist at Schroders, said that the more-than-normal seen this winter is already a sign that South Africa will enter an El Nino period in 2023, which will result in higher temperatures and lower rainfall.

He said that changing weather, particularly drought conditions for South Africa, could negatively impact food supply locally and globally, pushing prices higher.

“While leading indicators imply that food inflation in South Africa should still fall significantly in the near term, the effects of El Nino could cause it to rebound in 2024,” Rees said.

Although Sihlobo expressed concerns about the El Nino period, he said that it should not be as harsh on agriculture as the El Nino event in 2015/16.

“We are coming from four consecutive rainy seasons that have significantly improved soil moisture. Hence, we remain positive that the upcoming season will likely be decent, although down from the current large harvest,” he said.


Read: Grocery items on the chopping block for cash-strapped South Africans

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