by Wandile Sihlobo | Sep 26, 2023 | Food Security
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.
In essence, I recently stated in these pages that while there are renewed risks in global agriculture, such as India’s decision to ban specific categories of rice exports and the Black Sea Grain Deal Initiative that facilitated grains and oilseeds exports from Ukraine terminated and domestically the increases in fuel prices, we are still optimistic that South Africa’s consumer food inflation will continue to slow throughout the year into 2024.
The products that could underpin the slowing food inflation trend will likely remain similar to those in the past few months. Notably, red meat prices, which have softened at the farm level, should continue on this trend at the retail level in the coming months. Fruit and vegetable prices should remain relatively affordable because of improved domestic supplies. We may, however, see temporary blips in the prices of products such as potatoes due to seasonality.
Regarding the “bread and cereals” product prices, admittedly, the Black Sea Grain Deal challenges, and India’s rice exports ban are an upside price risk. With South Africa importing a million tonnes of rice and similarly exposed to wheat imports, the disruption in trade of these commodities and the length of it could have implications on global price and, ultimately, South Africa’s “bread and cereals” component of the food inflation basket.
We are already seeing a surge in global rice prices. Still, we have not seen a material change in prices domestically, and there will be a lag between three to five months before these are apparent at the retail level.
What is essential to monitor is the extent of price changes and the duration of the current surge. Hence, we expect the prices of grain-related products in the inflation basket to maintain a softening path regardless of the recent disruption in grain prices. Notably, the softening in maize prices could also overshadow the increases in rice prices in the coming months.
I had feared that the “oils and fats” products prices would start to increase and follow the global price trend, which showed an uptick in July. But the recent data from the Food and Agricultural Organisation of the United Nations (FAO) shows a retraction. For example, In August 2023, the FAO’s vegetable oil price index was at 126 points, down 3% from July 2023 and 23% y/y. The decline in the global prices of palm, sunflower, soybean and canola oils underpinned this.
Beyond the global dynamics, South Africa has a favourable agricultural season. For example, the 2022/23 maize harvest is estimated at 16,4 million, 6% higher than the 2021/22 season’s harvest and the second-largest harvest on record. Soybean harvest could reach a record 2,8 million tonnes.
Be that as it may, the prices of these products are influenced by global developments as we are an open economy interlinked to the world markets. Other field crops and fruits also show prospects for decent harvest this season. These increased supplies support the slowing food inflation view we expressed.
Also crucial for the food inflation outlook going into 2024 is highlighting that El Nino’s forecast in the upcoming 2023/24 summer crop season is another aspect to keep an eye on, although we remain optimistic that it will have a mild impact on the sector and thus keep production at decent levels and, by extension, sustain moderating food prices.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Sep 10, 2023 | Food Security
This past week, the South African government voiced concerns about the higher food prices and instructed the cabinet’s economic cluster to implement a food security plan to cushion consumers. We have yet to see the government’s strategy and approach.
But it is worth highlighting that South Africa’s consumer food price inflation has started to decelerate from the high levels of 14,4% we saw in March 2023. In July 2023, consumer food inflation was recorded at 10,0%, from 11,1% in the previous month. The product prices underpinning this deceleration in recent months are primarily bread and cereals; meat; fish; and oils and fats, which are crucial for low-income households.
Notably, as the cabinet’s economic cluster prepares to start its work, it is vital to have a common understanding of the key drivers of food prices in recent years and an appreciation that this is a global challenge, not unique to South Africa. For example, two primary drivers of global food prices existed before the covid-19 pandemic.
First, the drought in South America in the 2019/20 season reduced the harvest notably, primarily in Brazil and Argentina. These countries collectively account for 14% and 50% of global maize and soybean production. The drought has spread for roughly three seasons since 2019/20, further exacerbating the grain price increases from 2020 to the end of 2022.
Secondly, China’s continuous imports of grains and oilseed as the country was rebuilding its pork industry after a devastating African Swine Fever also added to the surge in demand at a period when global stocks were tight. China’s growing demand had a consequential impact on global grain prices because of its share size of imports — for example, the country imports about 60% of globally traded soybeans.
As covid-19 spread in early 2020, several major grain producers, such as India, Kazakhstan and Vietnam, worsened global price increases by temporarily banning exports. As this unfolded, shipping costs soared, increasing global grain prices. In sum, a combination of trade policy actions by other countries, logistics and weather conditions placed upward pressure on food prices.
These all-important fundamentals challenge food supplies, further worsened by the Russia-Ukraine war. Russia and Ukraine are substantial players in the grains and oilseeds market.
As a small, open economy, South Africa, interlinked with the world, was not insulated from these agricultural and food price shocks. Admittedly, South Africa was in a reasonably better place, with abundant supplies, as the La Niña weather event brought good rains across the country and supported agricultural activity. Still, the prices did not reflect the increased domestic supplies as the global shocks mainly underpinned them.
Over the period of higher global commodity prices, the food producers and processors had to deal with higher agricultural commodity prices and process such commodities further to produce the food products available at the retail level. The activities between the producer and retailer do not happen without costs, and time lag. The food value chain first depends on expansive logistical systems and networks, while processing involves labour, energy, packaging and finance costs. Once the food is processed, it must be distributed to retail outlets, bearing these costs. On top of that, we can add the dramatic costs of load-shedding and crime.
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 (compared to other countries), 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. This suggests that food processors and retailers if anything, absorbed some costs.
Notably, while the consumer food price inflation averaged 9,5% in 2022, the producer price inflation for agriculture at the same time was 15,0% and for food manufacturers at 12,3%. This further underscores the point that, if anything, the food manufacturers and retailers absorbed some costs.
These are all fundamental realities that need to be appreciated as the cabinet looks into the food price issues in South Africa. Thus, any policy response should be on the consumer side, without price interference.
Written for and first appeared in Business Day.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Aug 24, 2023 | Food Security
South Africa’s consumer food inflation continued to slow in July 2023, recorded at 10,0% from 11,1% in the previous month. The product prices underpinning this deceleration are primarily bread and cereals; meat; fish; and oils and fats.
While there are renewed risks in global agriculture, such as India’s decision to ban specific categories of rice exports and the Black Sea Grain Deal Initiative that facilitated grains and oilseeds exports from Ukraine terminated, we are still optimistic that South Africa’s consumer food inflation will continue to slow during this second half of the year.
The products that could underpin the slowing food inflation trend will likely remain similar to those in the past few months. Notably, red meat prices, which have softened at the farm level, should continue on this trend at the retail level in the coming months. Fruit prices should also remain affordable because of improved domestic supplies.
However, there are some risks in some food product categories. For example, the recent decline in “oils and fats” products in the inflation basket mirrored the softening price trend we saw in the global environment a few months ago. But this trend may change slightly in the coming months as we see the changes already in the global environment.
In July 2023, the FAO’s vegetable oil price index was at 130 points, up 12% from June. Significantly, this marked the first increase after seven months of consecutive declines. This increase was due to Black Sea concerns, mainly on sunflower oils, and the subdued production conditions on palm oil, a product South Africa imports in large volume.
We will keep an eye on the global vegetable oil prices as their price trends, over time, may reflect in South Africa, but not in equal proportion as the global price changes.
Regarding the “bread and cereals” product prices, the Black Sea Grain Deal challenges and India’s rice exports ban remain an upside price risk. With South Africa importing a million tonnes of rice and similarly exposed to wheat imports, the disruption in trade of these commodities and the length of it could have implications on global price and, ultimately, South Africa’s “bread and cereals” component of the food inflation basket.
Still, we have not seen a material change in prices for now, and we should not be alarmed; what is essential to monitor is the extent of price changes and their duration. Importantly, there is roughly a lag between three to five months between the price changes at farm and retail levels. Hence, we expect the prices of grain-related products in the inflation basket to maintain a softening path regardless of the recent disruption in grain prices.
Beyond the global dynamics, South Africa has a favourable agricultural season. For example, the 2022/23 maize harvest is estimated at 16,4 million, 6% higher than the 2021/22 season’s harvest and the second-largest harvest on record.
Soybean harvest could reach a record 2,8 million tonnes. Be that as it may, the prices of these products are influenced by global developments as we are an open economy interlinked to the world markets.
Other field crops and fruits also show prospects for decent harvest this season. These increased supplies support the slowing food inflation view we expressed. However, there are now renewed upside global risks and energy costs issues in the domestic market that need constant monitoring.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Jul 21, 2023 | Food Security
India officially announced a ban on rice exports this week. But it does not cover all rice categories, as some analysts, myself included, initially feared. It is mainly on the non-basmati white and broken rice. Still, this affected category is significant. It accounts for 45% of the 22 million tonnes of rice that India exports to the global market annually.
The rationale cited in various media articles in that India’s government is worried about inflation ahead of the upcoming elections.
However, the problem with this view is that India faces far less inflation pressure than other regions. For example, in June 2023, India’s annual consumer inflation was at 4.8%, down significantly from the start of the year when inflation was at 6,5% in January 2023. Food inflation has moderated at roughly the same pace, measured at 4,5% in June 2023, down from 5,9% in January.
Understandably, many people are worried about this development because India is a significant producer of rice globally. The country accounts for a 26% share in the expected 2023/24 global rice production of 525 million tonnes, according to data from the International Grains Council (IGC).
Of the 50 million tonnes of rice for global exports projected for the 2023/24 season, India is expected to account for about 40%. But the affected non-basmati white and broken rice accounts for 18% of global rice exports, which is still a significant share, and thus raises worries about potential upside on prices.
Other notable rice exporters are Pakistan, Thailand, the US, Vietnam, China, Cambodia, and Myanmar. But India is the largest exporter of all these countries.
At the end of June 2023, global rice prices softened from the surge we saw in May as the global production prospects improved. This price decline was positive for an already declining global agricultural commodities basket from the peak levels we saw after Russia invaded Ukraine in March 2022.
But the export ban, combined with the non-renewal of the Black Sea Grain Deal, will likely change this constructive view of global food prices.
Also worth noting is that the ban on India’s rice exports also comes in a season of abundance where such policy action is unexpected. For example, the IGC forecasts 2023/24 global rice production at a new peak of 525 million tonnes, up by 2% year-on-year.
China, Indonesia, Bangladesh, the Philippines, Brazil, the US, and Vietnam are the primary drivers of the expected sizeable global rice crop. India remains a notable producer, although its 2023/24 harvest could fall marginally by 0,4% from the 2022/23 season.
Subsequently, the global rice stocks are expected to remain solid at 171 million tonnes, roughly unchanged from the previous 2022/23 season. Such production figures should signal a broadly sideways move in global rice prices without trade frictions.
In this relatively healthy global supply environment, one would expect a low likelihood of inward-looking policy actions such as export bans.
Implications for South Africa
South Africa is one of the importing countries, the world’s eleventh largest rice importer, with a typical import volume of about a million tonnes a calendar year. The IGC forecasts South Africa’s rice imports at 1,1 million in 2023 and a similar volume for the next 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.
Given the importance of India in the global rice trade, over time, we will likely all feel the impact of the ban, depending on its duration, through an upswing in global rice prices. This would disrupt the declining trend of the global food prices we have all been observing through the FAO’s Global Food Price Index.
The non-renewal of the Black Sea Grain Deal is also an unhelpful development in combating global food security challenges. Over time, such price changes could be apparent in our domestic environment, although the level of price changes is currently unclear.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Jul 19, 2023 | Food Security
South Africa’s consumer food inflation slowed in June 2023, recorded at 11,1% from 12,0% in the previous month. The product prices underpinning this deceleration are mainly bread and cereals; meat; fish; milk, eggs and cheese; and oils and fats.
While there are renewed risks in global agriculture, such as India threatening to ban the exports of rice and the Black Sea Grain Deal Initiative that facilitated grains and oilseeds exports from Ukraine terminated, we are still positive that South Africa’s consumer food inflation will continue to slow during this second half of the year.
The products that could underpin the slowing food inflation trend will be similar to those in June. Notably, red meat prices, which have softened at the farm level, should continue on this trend at the retail level in the coming months.
Fruit prices, although no longer in deflation, should remain affordable because of improved domestic supplies. The decline in “oils and fats” products is in line with a softening price trend we are seeing in the global environment, as South Africa still imports its palm oil usage. For example, in June 2023, the FAO’s vegetable oil price index was at 117 points, down 22% y/y.
Admittedly, there are renewed risks on “bread and cereals” product prices. With South Africa importing a million tonnes of rice and similarly exposed to wheat imports, the disruption in trade of these commodities and the length of it could have implications on global price and, ultimately, South Africa’s “bread and cereals” component of the food inflation basket.
Still, we should not be alarmed; what is important to monitor is the extent of price changes and their duration. So far, we have seen notable gains in international and domestic maize and wheat prices.
Whether these price gains are sustained will depend on the developments in the Black Sea Grain Deal and India’s rice exports, which have not dominated the news as much. Importantly, there is roughly a lag between three to five months between the price changes at farm and retail levels. Hence, we expect the prices of grain-related products in the inflation basket to maintain a softening path regardless of the recent disruption in grain prices.
Beyond the global dynamics, South Africa has a favourable agricultural season. For example, the 2022/23 maize harvest is estimated at 16,4 million, 6% higher than the 2021/22 season’s harvest and the second-largest harvest on record. Soybeans harvest could reach a record 2,8 million tonnes.
Be that as it may, the prices of these products are influenced by global developments as we are an open economy interlinked to the world markets.
Other field crops and fruits also show prospects for decent harvest this season. These increased supplies support the slowing food inflation view we expressed, along with the global agricultural prices, which had declined notably in months before the termination of the Black Sea Grain Deal, whose impact is yet to transpire fully.
For example, the FAO global food price index, which measures price changes of international agricultural prices, averaged 122.3 points in June 2023, down by 23% from its peak in March 2022. It will be useful to monitor this index’s July 2023 reading.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Jul 5, 2023 | Food Security
South Africa had a challenging start to the 2022/23 summer crop season. Excessive rains slowed the planting activity in various regions from October 2022, when the season started to the end of the year. Thus, the crop was planted roughly a month behind some areas’ typical planting window. It was only around late January 2023 that all plantings were completed.
The late plantings also raised fears of possible poor yields, as some feared the crop would be negatively affected by frost later in the season. Another challenge was the intensified load-shedding and its impact on production, mainly for areas under irrigation, about 20% of maize and 15% of soybean production.
Fortunately, the combination of favourable weather conditions and the various interventions to ease the load-shedding burden on farmers supported the production conditions. The interventions include load curtailment, expansion of the diesel rebate to the food value chain, and, most recently, the launch of the Agro-Energy Fund. With that said, the effectiveness of these energy support measures differs across farming enterprises and food companies, and the costs to food producers, mainly those not fully benefiting from the above efforts, remain high because of all the necessary mitigation measures.
As a result, the crop production outlook in South Africa is fairly positive. For example, in the last week of June 2023, South Africa’s Crop Estimates Committee lifted the country’s 2022/23 commercial maize production estimate by 1% from the previous month to 16,35 million tonnes. This crop is 6% more than the 2021/22 season and the second-largest harvest on record. The expected ample harvest is primarily on the back of large yields, as the area planted is slightly down from the 2021/22 season. About 8,64 million tonnes is white maize, with 7,71 million tonnes being yellow maize. A crop of 16,35 million tonnes implies South Africa will have sufficient supplies to meet domestic maize needs of roughly 11,40 million tonnes and have over 3,00 million tonnes for export markets in the 2023/24 marketing year.
Moreover, the soybeans harvest was unchanged from May’s record estimate of 2,76 million tonnes (up 24% year-on-year). The annual crop improvement is due to an expansion in the area planted and higher yields. The ample soybeans harvest means South Africa could meet its domestic demand and remain with over 300 000 tonnes of soybeans for export markets. This soybean export expansion is a new territory for South Africa, which until recently, had been a net importer of soybeans and soybean products, and positive for the agricultural trade balance.
However, the sunflower seed production estimate was lowered by 5% from last month at 758 610 tonnes (down 10% y/y). The annual decline in the sunflower seed production forecast mirrors the reduced planted area and yields in some areas. Sorghum production estimate is down 1% from last month and now estimated at 103 870 tonnes (up 1% y/y). Other small crops, such as groundnuts and dry beans, were left unchanged from last month at 51 510 tonnes (up 6% y/y) and 48 560 tonnes (down 8% y/y), respectively.
Overall, South Africa has big summer grain and oilseed harvest, and the recent rains did not cause quality issues as some may have feared. Importantly, the fears of potentially bad harvest at the start of the year also did not materialize, and the country has one of its best agricultural seasons.
From a grain consumer perspective, these data bode well with the already softening maize and oilseed prices and reinforce a view of a possible moderation in grains-related food product prices in the food inflation basket. As I recently stated in the Mail and Guardian, after eight months of South Africa’s food inflation at levels above 12.3%, May 2023 data decelerated to 12.0%, down from 14.3% in April. The food product prices primarily underpinning this moderation in food inflation are bread and cereals (grains and oilseeds), meat, fish, oils and fats, and fruit.
We expect South Africa’s consumer food inflation to continue decelerating in the second part of the year, and the grains and oilseeds-related products will likely be amongst the products underpinning the softening trend of consumer food price inflation. Other products that will probably drive the slowing price inflation are vegetable oils and fruits, combined with grains and oilseeds, comprising roughly two-thirds of South Africa’s consumer inflation food price basket. Importantly, the base effects also support a view of a softening pace of about 8% to 9% year on year in 2023 (from 9.5% in 2022).
With all the challenges confronting South Africa’s agriculture this year, the country still achieved robust output, which bodes well for consumer food price inflation and supports export activity.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Jun 21, 2023 | Food Security
South Africa’s consumer food inflation decelerated to 12,0% in May 2023 from 14,3% in the previous month. The food product prices primarily underpinning this moderation are bread and cereals; meat; fish; oils and fats; and fruit.
We expect consumer food inflation to continue decelerating in the second part of the year. As we stated in our previous notes, the red meat prices, which have softened at the farm level, should continue on this trend at the retail level in the coming months. Fruit prices will likely remain on a similar declining trend as the harvest across South Africa continues, and domestic supplies have improved.
The decline in “oils and fats” products is in line with what we are seeing in the global environment, as South Africa still imports its palm oil usage. For example, in May 2023, the FAO’s vegetable oil price index was at 119 points, down 48% y/y. Still, the relatively weaker rand exchange remains an upside risk to prices of imported products that could somewhat reduce the gains for local consumers. This mainly applies to rice and wheat, as South Africa is a net importer of these products.
Moreover, the relatively lower farm-level maize prices will filter into the retail products mainly in the year’s second half. There is a lag between three and five months between farm and retail prices of some products. The base effects will also help soften consumer food inflation in the year’s second half.
The impact of load-shedding may continue to influence prices for the next few months. Still, the various interventions to ease the load-shedding burden on farmers, such as load curtailment, expansion of the diesel rebate to the food value chain, and, most recently, the launch of the Agro-Energy Fund, all support the production conditions.
Hence, the 2022/23 maize harvest is estimated at 16,1 million, 5% higher than the 2021/22 season’s harvest and the third-largest harvest on record. Soybeans harvest could reach a record 2,8 million tonnes. Other field crops and fruits also show prospects for decent harvest this season.
With that said, the effectiveness of these energy support measures differs across farming enterprises and food companies, and the costs to food producers, mainly those not fully benefiting from the above efforts, remain high because of all the necessary mitigation measures.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | May 24, 2023 | Food Security
The data released by Statistics South Africa on May 24 shows that consumer food inflation moderated at 14,3% in April 2023 from 14,4% in the previous month.
The food products prices that underpinned this slight deceleration are meat; oils and fats; and fruit. Meanwhile, other product prices increased mildly.
As stated in our previous notes, we expect consumer food inflation to remain sticky at relatively higher levels for another month or so and decelerate in the year’s second half.
Red meat prices, which have started to soften, should continue to moderate in the coming months as we see that trend at the farm level. Fruit prices will likely follow a similar trend as the harvest across South Africa gains momentum and improves domestic supplies.
The moderation in the “oils and fats” products is in line with what we are seeing in the global environment, as South Africa still imports its palm oil usage. For example, in April 2023, the FAO’s vegetable oil price index was at 130 points, down 45% y/y.
Still, the weaker rand exchange remains an upside risk to prices that could reduce the gains for local consumers. The same applies to rice and wheat, as South Africa is a net importer of these products.
Moreover, the relatively lower farm-level maize prices will filter into the retail products mainly in the year’s second half. There is a lag between three and five months between farm and retail prices of some products.
The impact of load-shedding may continue to influence prices for the next few months. Still, the various interventions to ease the load-shedding burden on farmers, such as load curtailment, expansion of the diesel rebate to the food value chain, and, most recently, the launch of the Agro-Energy Fund, all support the production conditions.
Hence, the 2022/23 maize harvest is estimated at 15,9 million, 3% higher than the 2021/22 season’s harvest and the third-largest harvest on record. Soybeans harvest could reach a record 2,8 million tonnes. Other field crops and fruits also show prospects for decent harvest this season.
With that said, the effectiveness of these energy support measures differs across farming enterprises and food companies, and the costs to food producers, mainly those not fully benefiting from the above efforts, remain high because of all the necessary mitigation measures.
South Africa’s consumer food inflation outlook for the year’s second half is reasonably better. The key drivers of the expected moderation will be meat, grain-related products, vegetable oils, and fruits, which comprise roughly two-thirds of the consumer inflation food basket.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
