Last week, the Food and Agriculture Organization of the United Nations (FAO) released its monthly Food Price Index for September 2023, averaging 121.5 points. The Index primarily measures the monthly change in international prices of a basket of agricultural commodities. The current price level is roughly unchanged from August 2023.

The declines in the price indices of vegetable oils, dairy and meat offset increases in the sugar and grains price indices. Favorably, the Index is 11% below its corresponding period in 2022 and 24% below the all-time high reached in March 2022 following the invasion of Ukraine by Russia.

If we focus on grains, the major upside driver of prices, according to the FAO, is “a confluence of factors, including strong demand for Brazil’s supplies, slower farmer selling in Argentina and increased barge freight rates due to low water levels on the Mississippi River in the United States of America.”

In addition to these factors, the lingering concerns about rice exports after India banned non-basmati rice exports on July 20 remain a potential upside risk to grain prices. After the news of the rice export ban, we saw cases of panic buying (in the United States and Canada), additional export restrictions (such as export licensing requirements in Myanmar), and price controls (retail price caps in the Philippines), which further adds upside risk to prices.

While these restrictions are worrying, it’s worth highlighting that there are generally large global rice supplies in the world market. Thus, we were disappointed by India’s actions and the resultant steps by other countries.

For example, in September 2023, the United States Department of Agriculture (USDA) estimated the 2023/23 global rice harvest at 518 million tonnes. This is up by 1% from the previous season. Vietnam, Thailand, the US, Pakistan, China, Indonesia, Bangladesh, the Philippines, and Brazil are the key drivers of this increase in the global rice harvest. Because of the solid consumption, the global stocks could decline somewhat from the previous season to about 168 million tonnes. With such supplies, one wouldn’t have expected the export restrictions.

As we stated a few weeks ago, South Africa is one of the rice-importing countries, the world’s eleventh largest rice importers, with a typical import volume of about a million tonnes a calendar year. The International Grains Council forecasts South Africa’s rice imports at 1,1 million in 2023 and a similar volume for the following year.

Roughly 90% of the imported rice is for the domestic market, and the balance is typically exported to neighbouring countries. Thailand is the leading rice supplier to South Africa, accounting, on average, for 74% of South Africa’s rice import volume a year in the past five years. India is the second largest rice supplier to South Africa, boasting an average annual share of 21% over the past five years.

Other rice suppliers to South Africa include Pakistan, Vietnam, China, Australia, the US, and Brazil. Thus, we continue to pay closer attention to global rice dynamics and its potential impact on prices.

Regarding sugar price increases, the FAO states that they “stemmed from increasing concerns over a tighter global supply outlook in the upcoming 2023/24 season. This mainly reflects early forecasts pointing to production declines in key sugar producers, Thailand and India, due to drier-than-normal weather conditions associated with the prevailing El Niño event.”

Overall, the broad global agricultural prices are roughly sideways, which is a positive development that bodes well for domestic food prices. The one aspect that one should keep an eye on for the near term is rice, and wheat prices on the back of lingering Black Sea war and trade disruptions following Russia’s non-renewal of the Black Sea Grain Deal.

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