A red flag for food prices in South Africa

 ·12 Mar 2024

Dryer and hotter-than-usual weather across South Africa’s main summer crop growing regions is hurting the outlook for the key corn harvest and raising risks for higher food-price inflation, according to a farm-industry group.

“The major risks to consumer food inflation in South Africa in 2024 will primarily be white maize products,” said Wandile Sihlobo, chief economist at the Agricultural Business Chamber of South Africa.

“We see upside risks in maize prices and grain products in the consumer food inflation basket.”

The South African central bank is closely watching food prices as it assesses if it can safely start lowering interest rates later this year.

It has repeatedly flagged the risk that El Niño-induced weather patterns may have on inflation.

The central bank’s models show severe drought conditions caused by the climate phenomenon could add 3 to 8 percentage points to headline inflation.

While farmers have managed to expand planting areas relative to the previous season, yields are expected to be poor and suffer from heat damage and a lack of rainfall, Sihlobo said.

Corn is among South Africa’s main crops and a staple for millions. The country consumes most of the corn it produces and exports surpluses mainly to neighbouring countries.

In its most recent forecast released at the end of February, the Crop Estimates Committee saw harvests for white and yellow corn falling 17.2% and 7.7%, respectively, in the 2023-24 season.

Overall, corn production is estimated to come in at 14.3 million tons.

Second 2023/24 production forecasts for summer crops are scheduled for release on 26 March and will likely indicate worsening conditions for corn, he said.

South Africa’s annual inflation rate rose for the first time in three months in January to 5.3% from 5.1% in the prior month.

Food inflation, which has been the biggest contributor to the headline number, slowed to 7% from 8.5% in December.

Reserve Bank Governor Lesetja Kganyago told Bloomberg last month that the inflation outlook is volatile, ruling out the possibility of rate cuts in the near term.

At its last rate-setting meeting, the central bank kept its benchmark interest rate at an almost 15-year high of 8.25%, which it has held since May.

Read: More peanut butter pulled from shelves in South Africa – Clover in the hot seat

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