South Africa’s consumer food inflation slowed to 8,2% in August 2023 from 10% in the previous month. The product prices underpinning this deceleration are similar to the previous month, mainly bread and cereals; meat; fish; oils and fats; milk, eggs and cheese; and vegetables. My view of the path forward remains unchanged from what we communicated last month.
South Africa’s 2023/24 summer crop production season kicks off soon, and the uncertainty over the intensity of the El Niño weather event, and the higher temperatures and lower-than-normal rainfall it could bring, remains a concern.
While we are still early in the season, and a lot could change depending on the weather conditions over the coming weeks and months and crop development in the Southern Hemisphere when the season starts in October, the current prospects are broadly positive. If this optimistic crop production materialises, we could see a recovery in the global grains and oilseeds stocks, thus keeping global grain prices sideways over the medium term.
South Africa’s agricultural exports amounted to US$3.4 billion in the second quarter of this year, up by 0,1% y/y. Despite challenges in key export markets such as the EU in the case of citrus, the products that dominated the export list this quarter were citrus, maize, apples and pears, wine, sugar, soybeans, wool, avocados, pineapples, fruit juices, nuts, and grapes.
We are now convinced that the relatively more robust agricultural machinery sales of the first half of this year were primarily a tail-end benefit of the past season when large harvests and higher commodity prices boosted grain farmers’ finances. The delivery delays of the orders raised the sales figures for the first half of the year.
If food processors and retailers accounted for all these cost increases across the value chain, consumers would face a much sharper price increase. But this was not the case in South Africa. Food prices increased at a moderate pace, averaging 9,5% in 2022, compared with 6,5% year on year in 2021. Countries like the US, Brazil, and the EU saw higher consumer food price inflation rates.