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.
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by Wandile Sihlobo | May 11, 2023 | Food Security
The recently released data by Statistics South Africa shows that consumer food inflation accelerated to 14,4% in March 2023 from 14,0% in the previous month. The food product prices that increased notably were milk, eggs, and cheese; fruit; vegetables; and sugar, sweets, and desserts.
However, we are probably closer to the peak, and there should be moderation soon. I expect consumer food price increases to remain sticky at relatively higher levels for the coming month, which will likely be the peak. There could be some moderation from around May into the year’s second half.
For April, we will likely see the continuation of the tail-end effects of the high grain prices of last year. If sustained, the current relatively cheaper grain prices will filter through mainly in the year’s second half. There is a lag between three and five months between farm (agricultural commodity prices) and retail prices of some products.
Other product prices that could remain elevated in the near term are fruits and vegetables. The unfavourable weather conditions over the past few months disrupted vegetable production.
Moreover, the area plated for some vegetables was lower this season than in the previous one, which also weighed on the harvest. We also saw reports of crop diseases in some vegetables, such as tomatoes, which added to wobbly vegetable prices. Thus, there was a pick-up in some vegetable product prices in recent months.
But this will be a temporary blip and should soften in the year’s second half. There is already an improvement in supplies of certain vegetables, which should help curb the rising prices.
Moreover, the impact of load-shedding may also influence prices for the next few months. The mitigating measures businesses are currently making to improve power supplies, along with the diesel rebate announced by the Finance Minister, should bear fruits later in the year.
The Agro-Energy Fund to help farmers establish alternative energy sources is another welcome development that should bear fruits in the coming months.
Positively, global agricultural commodity prices are softening. In April 2023, the Food and Agriculture Organization of the United Nation’s Global Food Price Index, a measure of the monthly change in international prices of a basket of agricultural commodities, was at 127,2 points, down 20% from April 2022. This shows that there is an improvement in the affordability of various agricultural commodity prices since their peak in the month after Russia invaded Ukraine last year. This decline has been observed in most commodity prices, including cereals, dairy and vegetable oils.
Importantly, these are farm-level prices, although named “Food Price Index”, not retail prices. Therefore, the decline at the farm level will take time to show at the retail level. In South African experience, this could be a lag of between three to five months, as I noted above.
The exception in the global commodity moderation is sugar and meat prices, which are relatively up. The price surge in sugar reflects the concerns about the tight global supplies in the 2022/23 season. This uptick is caused by the downward revisions to the sugar production forecasts for India and China, along with lower-than-earlier-expected outputs in Thailand and the European Union.
Moreover, the meat price index increase was underpinned by the firm demand in Asian countries for pork. The pork supply limitations in several leading exporters increased prices 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.
Still, the FAO Food Price Index is 20% lower than in April 2022, primarily driven by the softening prices of the cereals, dairy and vegetable oil price 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 compared to a year ago.
South Africa is part of the global agricultural market. Therefore, this anticipated price trend will likely be a reality also in the domestic market. South Africa’s maize, soybeans and sunflower seed prices are already down by 20% from levels we saw a year ago.
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. Still, this will be sufficient to moderate consumer food price inflation.
Notably, South Africa had a favourable agricultural season following adequate rainfall. The 2022/23 maize production is estimated at 15,9 million tonnes, 3% higher than the 2021/22 season’s harvest. The current harvest is the third-largest harvest on record. The harvest improvement is primarily on the back of expected large yields, as the area planted is slightly down from the 2021/22 season. About 8,4 million tonnes is white maize, with 7,5 million tonnes being yellow maize. A crop of 15,9 million tonnes implies that South Africa will have sufficient supplies to meet domestic needs of roughly 11,4 million tonnes and remain with about 3,0 million tonnes for export markets in the 2023/24 marketing year that started in May 2023.
Also worth noting is that South Africa’s soybeans harvest is estimated at a record 2,8 million tonnes. The crop improvement is due to an expansion in the area planted and the expected higher yields. The expected large harvest means South Africa could meet its domestic demand and remain with just over 300 000 tonnes of soybeans for export markets.
Red meat prices, which have softened over the past few months, should continue to moderate somewhat in the coming months, as we already see that continuous trend at the farm level. The expected softening in red meat prices is a function of both improved supplies and the usually weaker domestic demand that reflects the bleak economic conditions.
In essence, 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 food inflation basket. The base effects also support a view of a softening pace to levels around 8% y/y in 2023 (from 9,5% in 2022).
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by Wandile Sihlobo | Mar 22, 2023 | Food Security
OK folks, this is a reasonably busy day, but I wanted to comment on the recently released consumer food price inflation data for February 2023 by Statistics South Africa. I will write something in-depth at a later stage.
Here is a brief synopsis and my views.
South Africa’s consumer food price inflation accelerated mildly to 14% y/y in February 2023 from 13,8% in the previous month. The food product prices that increased notably were meat; milk, eggs and cheese; vegetable; and sugar, sweets and desserts.
These elevated levels of South Africa’s consumer food price inflation are unsurprising and illustrate an environment where there are still tail-end effects of generally higher agricultural commodity prices.
Moreover, the results of load-shedding, which intensified in January 2023, will likely underpin prices for a few months and dissipate as the new measures taken by the Finance Minister and the Department of Agriculture, Land Reform, and Rural Development starts to gain momentum. The measures include the diesel rebate and load curtailment possibilities, amongst others. These are mainly at the production level and do not include retailers.
Positively, the agricultural commodity price trend has changed globally, now softening. This will soon be a reality in South Africa.
Moreover, the meat prices, which underpinned the uptick in February, could also soften, and we see that already in red meat prices. All this will be positive. Also, sharp vegetable price increases were temporary and influenced by weather conditions.
Taking all these aspects together, we should see South Africa’s consumer food price inflation softening from around May into the year’s second half.
Overall, South Africa’s annual consumer food price inflation should average around 7% (from 9,5% in 2022), assuming notable decelerations in bread, cereals, meat, oils, fats, and fruit. This assumes notable deceleration in the year’s second half of the year, and the base effects from 2022 elevated inflation levels.
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by Wandile Sihlobo | Feb 15, 2023 | Food Security
While in some regions of the world, consumer food price inflation has started to cool off; South Africa sees the opposite. The data released this morning by Statistics South Africa shows that consumer food price inflation accelerated to 13,8% y/y in January 2023 from 12,7% in the previous month.
The food product prices that increased notably were bread and cereals, meat, fish, fruit, and vegetables. These are also the products with a significant weighting within the food basket; thus, we see a notable increase in the headline number.
For example, within the food basket, the large weighting of essential products are meat (35%); bread and cereals (21%); milk, cheese, and eggs (17%); vegetables (8%); sugar, sweets, and desserts (4%); oils and fats (3%); and fruit (2%).
The price increases in bread and cereals reflect a continuation of the pass-through of the price increases that food manufacturers have felt from the higher agricultural commodity prices in much of 2022. There is typically a time lag of roughly three to five months before changes in farm prices show up in the retail prices of staple grains; hence, while some grain prices started to soften in December 2022 but retail prices are still going up.
In the case of meat prices, the higher feed costs and the decline in slaughtering activity due to the widespread foot and mouth disease, continue to be underlying challenges driving up prices. This is most pronounced in red meat.
Meanwhile, the heavy rains that disrupted production conditions in fruits and vegetables contributed to lower supplies of some products in the first month of this year and, subsequently, price increases.
The production costs associated with load-shedding might not have been fully factored in the January figures and are likely to show in the coming months.
We have stated previously that the disruptions caused by power supply interruptions to some food processing companies as well as the associated cost increase all present upside risks to consumer food price inflation. Before this intensified load-shedding period, we thought South Africa’s consumer food price inflation would slow to 5,5% – 6,0% in 2023 (down from 9,5% in 2022).
We have since revised our view. We now see a possibility of a slightly higher figure from these estimates we communicated. However, our updated view will be in the next release when we have a clear sense of the scale of agricultural disruption and the broader food, fibre, and beverages value chains.
Broadly, the agricultural conditions are favourable for grains and oilseeds. The load-shedding risk and associated costs are high, mainly in fruit and vegetables that are fully produced under irrigation and in the poultry sector, dairy, abattoirs, millers, and various food processors.
NB: This note was for Agbiz members, but I figured it may interest the readers of this blog.
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by Wandile Sihlobo | Nov 6, 2022 | Food Security
October 16 marked World Food Day, commemorating the founding of the United Nations Food and Agriculture Organization in 1945. Across the world, this day offers an opportunity for countries to assess their food security conditions and efforts to boost agricultural production.
One of the measures that some often use to evaluate the food security condition of each country relative to the world is The Economist’s Global Food Security Index, which Corteva sponsors. This latest Index ranks South Africa at 59 out of 113 countries, an improvement from the 70th position in 2021. This places South Africa as the most food secure in the African continent, followed by Tunisia at 62nd.
This improvement is commendable. When looking at the Index scoring’s technical position, it becomes clear why South Africa’s food security ranking has improved. South Africa’s scoring came in at 61,4, up from 57,8 in 2021.
This shows that South Africa’s progress in the Global Food Security Index is not merely because other countries have regressed, particularly since the start of the Russia-Ukraine war, which increased global food prices but that there has been an actual improvement in its own underlying conditions.
The Global Food Security Index comprises four subindices, namely; (1) food affordability, (2) food availability, (3) food quality and safety, and (4) sustainability and adaption. The affordability and availability subindices carry a combined weighting of two-thirds of the total index.
The affordability subindex includes the change in average food costs, agricultural trade, food safety net programs, and funding for food safety net programs. Meanwhile, the availability subindex includes the sufficiency of supply, agricultural infrastructure, and political and social barriers to food.
In 2022, South Africa experienced a mild deterioration in the food affordability subindex of 7 points. Meanwhile, the rest of the other subindices improved significantly. This decline in the affordability subindex is unsurprising as the country has witnessed a broad acceleration in consumer food price inflation since the start of the year.
South Africa’s consumer food price inflation averaged 8,0% y/y in the first eight months of 2022, from 6,5% over the same period in 2021. Still, what is worth emphasizing is that this challenge speaks to the rising cost of food in an environment of generally high unemployment.
Notably, the rise in food prices is a global phenomenon and not unique to South Africa. The dryness in South America, which negatively affected the crops in the 2021/22 production season, combined with growing demand for oilseeds and grains in China, and higher shipping costs, and recently, the Russia-Ukraine war, are some of the factors that have underpinned global food price inflation surge. This, in turn, lifted prices in South Africa, despite the large domestic agricultural harvests in the past three seasons.
Nevertheless, global food prices have come off the levels we saw in the months immediately after Russia invaded Ukraine. For example, in September 2022, the FAO’s Global Food Price index was down by 1% from the previous month. This marked a sixth monthly decline and was underpinned by the deterioration in the prices of vegetable oils, sugar, meat, and dairy products.
This means that affordability for all countries has far improved from the third quarter of the year. Still, the current price levels are higher than in 2021. For example, the FAO’s Global Food Price Index is still 6% up from September 2021. Another key point to emphasize is that food prices were already elevated in 2021 due to disruptions in the supply chains, drought in South America, and increased demand for grains in China, amongst other factors.
A major issue to keep in mind when observing global agricultural indices, such as the Global Food Security Index, is that subjectivity can never be fully eliminated from the authors’ judgment.
Resource constraints can hinder objective data collection on the ground in each country, and they sometimes rely on blueprint models that might not be site specific. Sources of bias can stem from inconsistency in data quality, frequency, and reliability across all countries. The weightings and rankings are also tricky because they must be tailored to suit different socio-economic contexts.
Still, the key message is that South Africa is in a better place regarding food security and leading the continent. This does not mean there should be complacency. South Africa will need to continue improving food security through expansion in agricultural production and job creation in various sectors of the economy.
As we have previously stated, at a technical level, the ideas of expanding agriculture and agro-processing capacity to boost growth and job creation were well established as far back as in National Development Plan in 2012. They were again highlighted in the 2019 National Treasury paper and, most recently, in the 2022 Agriculture and Agro-processing Master Plan.
These include expanding agricultural activity in the former homelands and government land, enhancing government-commodity organizations’ partnerships in extension services, investment in the network industries (water, electricity, and road infrastructure), port infrastructure, and state laboratories.
Some interventions are more regulation-focused and therefore do not require significant capital spending by the government, although these still need institutional capacity building.
Such regulatory interventions include modernizing regulations such as the Fertilizers, Farm Feeds, Seeds and Remedies Act 36 of 1947, with which many role players in agriculture continue to express dissatisfaction. The Agricultural Product Standards Act’s enforcement to ensure that the Department of Agriculture, Land Reform, and Rural Development leads the implementation and does not assign it to third parties is another critical intervention that could be explored.
Regarding regional focus, Limpopo, KwaZulu-Natal, and the Eastern Cape, the most food-insecure provinces, also have vast tracts of underutilized land. These provinces should be a priority in agricultural development plans. With a commercial focus where conditions permit, agriculture improvement would help job creation and household food security in South Africa.
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by Wandile Sihlobo | Oct 19, 2022 | Food Security
This blog post will provide a brief synopsis of South Africa’s consumer food price inflation data for September 2022. This is a subject of great interest as food prices have remained relatively elevated worldwide. Still, South Africa hasn’t experienced sharp increases as the EU, where food price inflation reached 14,0% year-on-year (y/y) in August 2022, or Brazil, where consumer food price inflation was at 13,4% y/y, and Kenya at 15,3% y/y.
The data released by Statistics South Africa shows that the country’s consumer food price inflation accelerated further to 12,3% y/y in September 2022 from 11,5% y/y in the previous month. The products behind this monthly increase were mainly “bread and cereals”, “meat”, “milk, eggs and cheese”, and “vegetables”.
The general consumer food price increase mirrors the surge in agricultural commodity prices over the past few months. The agricultural commodities price increase emanates from various factors such as the drought in South America, higher shipping costs, strong agricultural product demand in China, and, most recently, the Russia-Ukraine war. Moreover, the higher fuel price inflation since the start of the war is an additional cost driver of food prices.
More specifically, the higher global grain and oilseed prices for much of this year have been the core drivers of the costs of “bread and cereals” and “oils and fats” in the consumer food price inflation basket. “Bread and cereals” are also amongst the key drivers of the price inflation in September.
Notably, these are also products with a relatively higher weighting within the food basket. For example, within the food basket, the essential products are meat (35%); bread and cereals (21%); milk, cheese and eggs (17%); vegetables (8%); sugar, sweets and desserts (4%); oils and fats (3%); and fruit (2%).
In the case of vegetables, the uptick registered in September is likely to be a temporary blip. It is due to seasonality which caused a decline in volumes in the fresh produce markets across the country. We expect to recover in the coming months, especially as the weather conditions are set to improve and boost agricultural production.
The one essential product whose price trend remains uncertain is meat, although its prices increased mildly in September. The outbreaks of foot-and-mouth disease have led to the temporary closure of some key export markets for the red meat industry.
Ordinarily, this would add downward pressure on prices as it implies that we would see an increase in domestic meat supplies.
But this time around, the spread of the outbreak is vast, to the extent that we are observing a slight decline in slaughtering in some feedlots, which has ultimately kept red meat prices at relatively higher levels; the opposite of what we initially anticipated. For example, in August 2022, cattle slaughtering was down by 2% y/y, with 206 052 head of cattle slaughtered.
In sum, the global grain and oilseed prices, which have been the major drivers of the surge in inflation, are starting to soften, which shows in the global indices.
The FAO’s Global Food Price Index was 136 points in September 2022, down by 1% from August and registering its sixth consecutive monthly decline. These global developments will, with time, also reflect in South Africa, and this could also be mirrored in the consumer food price inflation data in the coming months. Therefore, I expect the domestic consumer food price inflation to start moderating towards the end of 2022 and into 2023.
Admittedly, the current levels far surpassed my initial expectations that July was a peak month for consumer food price inflation.
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by Wandile Sihlobo | Aug 24, 2022 | Food Security
The higher agricultural commodity prices we’ve observed in the months since Russia invaded Ukraine continue to filter into the food price inflation data. Moreover, the higher fuel price inflation since the start of the war is an additional cost driver of food prices.
The data released this morning by Statistics South Africa show that in July 2022, the consumer food price inflation accelerated by 10,1% y/y, from 9,0% y/y in the previous month. This is the fastest pace since January 2017, which was a drought period in agriculture where costs were driven by higher agricultural commodity prices.
The higher global grains and oilseed prices for much of the first half of this year have been the drivers of the costs of “bread and cereals” and “oils and fats” in the consumer food price inflation basket.
These are also products with a relatively higher weighting within the food basket. For example, within the food basket, the key products are meat (35%); bread and cereals (21%); milk, cheese and eggs (17%); vegetables (8%); sugar, sweets and desserts (4%); oils and fats (3%); and fruit (2%).
The grains and oilseeds prices, which have been the major drivers of the surge in inflation, are starting to soften and this shows in the global indices. In fact, the FAO’s Global Food Price Index averaged 140.9 points in July 2022, down by 9% from June.
This was the fourth consecutive monthly decline, led by the drop in the prices of grains and oilseeds. These global developments are starting to show also in South Africa, and the lag could also reflect on the consumer food price inflation data in the coming months. Therefore, we suspect this might be a peak in the domestic food consumer price inflation.
In the case of fruits and vegetables, South Africa has a sizable harvest and the disruption in fruit exports within the Black Sea and the EU could add downward pressure on domestic prices.
This bodes well for the consumer in the near term (and the opposite is true for the farmers). The one essential product whose price trend remains uncertain is meat.
The outbreaks of foot-and-mouth disease have led to the temporary closure of some key export markets for the red meat industry. Ordinarily, this would add downward pressure on prices as it implies that we would see an increase in domestic meat supplies.
But this time around, the spread of the outbreak is vast, to an extent that we might see a decline in slaughtering in major feedlots, which would ultimately keep red meat prices at relatively higher levels; the opposite of what we initially anticipated. This remains uncertain and we will closely monitor the monthly slaughtering activity.
Positively, the suspension of the anti-dumping duties for poultry products could help contain the potential price increases in this product, at least in the near term. Still, the broad meat price trend will be dependent on the developments in the beef market.
Overall, as in the previous months, various factors in the South African food market will likely push in opposing directions in the coming months.
Still, South Africa will likely remain an exception from the world, with food price inflation contained at relatively lower levels than most regions of the world. Importantly, the coming months could show moderation from the level we saw in July.
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by Wandile Sihlobo | Jun 27, 2022 | Food Security
We are in a period of elevated prices, and food is at the core of these increases. For example, in May 2022, South Africa’s consumer food price inflation accelerated to 7,8% y/y, from 6,3% in the previous month. This is the quickest pace since March 2017.
The increase was broad base on all food products in the inflation basket. This largely mirrors the uptick we have been seeing in the global agricultural commodity prices, and indeed the domestic market.
Importantly, we are now also starting to see the spillover the Russia-Ukraine war had on agricultural commodity prices transmitted into retail food prices. In fact, for the grain-related and vegetable oils products, we will likely see a continuous mild uptick in the coming month or two, which could push up mildly the headline food consumer price inflation number further.
Since the Russia-Ukraine war began and disrupted the global grains market, the global agricultural commodity prices have increased significantly, with the FAO’s Global Food Price Index in May averaging 157 points, which is up 22% y/y, coming from a record high seen in March.
The disruption in the palm oil market, and indeed the entire vegetable oils market, the ban on wheat exports by India, and the expected lower wheat harvest in the 2022/23 production season are added upside risks that could sustain global food prices at higher levels.
We, however, don’t see potential further increases in the global agricultural commodity prices, but that prices could hover at current elevated levels for some time. South Africa, which is interlined to global agricultural markets, has also experienced increased agricultural commodity prices.
The result of these developments is the recent uptick in the cereals, and oil and fat products prices in the consumer food price inflation basket. These could remain elevated, in line with our expectations of global agricultural commodity prices.
Nevertheless, we still think the outlook on food product prices will remain mixed, despite the recent broad increase in product prices.
In the case of fruits and vegetables, South Africa has a sizable harvest and the disruption in fruit exports within the Black Sea region could add downward pressure on domestic prices. Therefore, we hold a generally favourable view of these product price directions for the coming months. Moreover, the recent increases in the vegetable price inflation were reflective of a temporary supply disruption, which is now adjusting well.
The one essential product whose price trend remains uncertain is meat. The recent outbreaks of foot-and-mouth disease have led to the temporary closure of some key export markets for the red meat industry, thus potentially adding downward pressure on prices.
Still, this will be dependent on the cattle and sheep slaughtering activity, which for now remains robust, with 197 712 head of cattle slaughtered in April 2022 (-2% y/y), and 318 155 head of sheep slaughtered in the same month (-10% y/y). Conversely, there are fears of a potential increase in poultry product prices, which could lessen the benefit of softer red meat prices.
Overall, various factors in the food market will likely push in opposing directions in the coming months. Thus, I believe that South Africa’s consumer food price inflation could average just above 6,0% y/y in 2022 (from 6,5% in 2021).
The base effects, along with meat, fruits and vegetables, will likely provide a constructive price inflation path ahead. With that said, the next month or two will likely show elevated consumer food price inflation, with moderation in much of the second half of the year.
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