The FAO Food Price Index, a measure of the monthly change in international prices of a basket of food commodities, declined by 3% in May 2023 from the previous month to 124 points.
Importantly, this is 22% lower than the all-time high reached in March 2022, primarily driven by the softening prices of the cereals, dairy and vegetable oil indices.
These price trends will likely overshadow the impact of the rising sugar and meat prices in the near to medium term and thus keep the headline global food price index at relatively lower levels than a year ago.
The price surge in sugar reflects the concerns about the tight global supplies in the 2022/23 season and the rising concerns over how the development of the El Niño phenomenon may affect the 2023/24 crops.
Moreover, the meat price index increase was underpinned by the firm demand in Asian countries for pork and supply constraints. The pork supply limitations in several leading producing countries were due to high production costs and animal health issues.
Additionally, the solid Asian demand extended to poultry meat; hence the price rebounded following nine months of continuous declines. The supply limitations arising from widespread avian influenza outbreaks in various regions also increased the price.
South Africa is part of the global agricultural market. Therefore, this anticipated price trend, particularly in grains (other than rice, which is rising globally, and the is a rand/dollar exchange risk on its imports) and vegetable oils, will likely be a reality also in the domestic market.
In essence, this means that agricultural commodity prices will likely continue to soften from last year’s levels, although not to the extent that we are back at pre-covid-19 levels.
Importantly, this FAO Food Price Index measures commodity prices at the farm level, and there is a lag before such price trends are reflected at the retail level, and even there not to an equal extent because of the value costs such as processing, packaging, distribution, labour, etc.
Still, this will be sufficient to somewhat moderate the consumer food price inflation from the current levels in the year’s second half. Also, we will monitor the global meat price direction and its impact on South Africa, as this would influence the current food inflation view.
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