by Wandile Sihlobo | Oct 26, 2024 | Food Security
After a slight increase to 4,1% in August 2024, South Africa’s consumer food price inflation remained unchanged in September.
However, there was a mild deceleration in some products’ price inflation, including “bread and cereals”, “meat”, “sugar, sweets and desserts”. The “oils and fats” are in deflation. The “milk, eggs and cheese” remained flat from the previous month.
These moderating price trends were countered by the slight increase in the price inflation of “fish”, “fruit”, and “vegetables”; thus leading to an unchanged headline consumer food price inflation in September 2024.
The base effects of higher consumer food price inflation a year ago have contributed to the generally moderate trend of some products this year. For example, this time last year, there were risks of higher grain prices after India banned rice exports, and avian influenza, which spread in various regions of the country, led to constraints on egg supplies and, ultimately, upside price risks.
We are far from that worrying reality, as India has resumed rice exports and South Africa’s poultry product supplies have normalized.
While having eased in September 2024, the grain-related products remain the upside risk to consumer inflation following a poor crop harvest due to the drought. For example, South Africa’s 2023-24 maize harvest is estimated at 12,80 million tonnes, down 22% year-year. This sharp decline in harvest signifies the harsh impact of the 2024 mid-summer drought, and the regions most affected were the white maize growing areas, a staple crop that is also scarce in the world market.
Thus, white maize prices have rallied in recent months, while yellow maize prices have remained sideways. The additional challenge is the continuous demand for white maize from the Southern African region through the first quarter of 2025.
That said, we don’t expect the potential grain-related product price increase to be substantial as the forecasts from the International Grains Council signal the possible ample global wheat and rice harvest in 2024-25, which could cushion the region as substitutes.
The increase in the prices of vegetable products will likely be temporary and mirror the disruptions due to weather-related issues. We have already seen the volume of various vegetable products improving in some fresh produce markets.
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by Wandile Sihlobo | Oct 12, 2024 | Food Security
Earlier this week, I stated on X (Twitter) that South Africa is generally food secure at a “national level” but has a major “household food insecurity” challenge. Given the difficulty many South Africans face, I should have offered more detail on what I meant. The idea was not to disregard the painful challenge of hunger we all witness daily across the country.
Hence, I want to explain my thought process at length in this post and offer some suggestions about improving our situation at the end of this piece.
One of the measures some researchers often use to evaluate the food security condition of each country relative to the world is The Economist’s Global Food Security Index. In 2022, South Africa ranked 59th out of 113 countries in the index and was the most food secure in Sub-Saharan Africa. This is an improvement from the previous year’s ranking of 70th in 2021. South Africa ranked the second most food-secure country in the African continent after Morocco.
The Global Food Security Index comprises four subindices, namely: (1) food affordability, (2) food availability, (3) food quality and safety, and (4) sustainability and adaptation. 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, proportion of population under the global poverty line, and funding for food safety net programs.
Meanwhile, the availability subindex includes the sufficiency of supply, access to inputs, agricultural research and development, farm infrastructure, supply chain infrastructure, food loss, 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 witnessed a broad acceleration in consumer food price inflation since the start of the year. South Africa’s consumer food price inflation averaged 9,5% y/y in 2022, from 6,5% up from in 2021. Food inflation was also elevated in 2023, averaging at 11,0%.
In 2024, however, we saw market deceleration, with South Africa’s food inflation averaging 4,8% in the first eight months of the year.
Global challenges that pushed up food prices
Importantly, the higher food inflation in 2022 and 2023 was a global challenge not unique to South Africa.
Admittedly, in an environment such as South Africa with higher unemployment, the effects of food inflation shocks tend to be more severely felt by consumers.
Over the last few years, several factors have added upward pressure on global food prices. 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 persisted for roughly three seasons since 2019/20, further exacerbating the grain price increases from 2020 to 2022.
Secondly, China’s 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. 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 further. In sum, a combination of trade policy actions by other countries, logistics and weather conditions placed upward pressure on food prices.
These challenges were further worsened by the Russia-Ukraine war. Russia and Ukraine are substantial players in the grains and oilseeds market. The former produces about 10% of global wheat, while Ukraine accounts for 4%. Together, the two countries account for a quarter of global wheat exports.
Moreover, Russia and Ukraine are notable players in maize, responsible for 4% of production combined. However, their contribution is even more significant in exports, accounting for an average of 14%. Both countries are also among the leading producers and exporters of sunflower oil. Pre-war, Ukraine’s global product exports accounted for 40%, with Russia accounting for 18%. Thus, the war led to a surge in grains and oilseeds prices for much of 2022.
South Africa problems
As a small, open economy, South Africa, interlinked with the world, was not insulated from these agricultural and food price shocks. Admittedly, in 2022 and 2023, 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 dominated.
These were the first round of shocks in global food prices. Fortunately, by the end of 2022, as the grain trade resumed in the Black Sea region following the Black Sea Grain Deal initiative that started in July 2022 and allowed for exports of grain from Ukraine without military attacks by Russia, the global agricultural prices came off the record levels seen months after the invasion of Ukraine. The global agricultural prices continued to decline throughout 2023 and 2024. Thus, even domestically, the food price inflation moderated somewhat in 2024 (The new upside risk on prices in South Africa is the domestic drought in the 2024 summer season).
The problem with the food security measurements
The 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 may 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.
Key message
With that said, the key message is that South Africa is in a better place regarding food security when compared with various countries in the world. 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.
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 the National Development Plan 2012. They were again highlighted in the 2019 National Treasury paper, in the 2022 Agriculture and Agro-processing Master Plan, and, most recently, in a book titled A Country of Two Agricultures: The Disparities, The Challenges, The Solutions.
These include expanding agricultural activity in the former homelands and government land, the release of PLAS land with title deeds (about 2,5 million hectares that are in government books), effective blended finance scheme, enhancing government-commodity organizations’ partnerships in extension services, investment in the network industries (water, electricity and road infrastructure), port infrastructure, and state laboratories.
Across the regions, Limpopo, KwaZulu-Natal and the Eastern Cape are the most food-insecure provinces, but these 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 job creation to be achieved, all to boost South Africa’s food security conditions.
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by Wandile Sihlobo | Oct 9, 2024 | Food Security
South African households are generally under pressure, and the relatively higher food prices add to the difficulty. Still, it is wrong to accuse anyone of being responsible for higher food prices (I am making this statement in response to the article published in Business Day this week titled “Retailers not cutting food prices fast enough, says watchdog,” October 7).
The factors driving up costs are clear — among many others we have had a drought that led to a poor harvest, higher fuel prices for much of 2024 and higher labour costs. Most agricultural commodity prices remain elevated, mirroring the effects of these factors.
One can argue that the food prices at the retail level do not mirror the extent of increases we see at the farm level, which means retailers have probably absorbed some of the higher costs.
Most importantly, even when agricultural prices start to ease there is typically a lag of three to six months before one sees these reflected at the supermarket till.
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by Wandile Sihlobo | Aug 27, 2024 | Food Security
After a prolonged period of much higher food price inflation, the recent data paint a welcome picture of notable easing. South Africa’s consumer food price inflation slowed to 3.9% in July 2024, from 4.1% in the previous month. This is the lowest level since January 2020 and was underpinned by the continued moderation in price inflation across most products in the food baskets, except for bread and cereals and meat.
South Africa’s food price inflation — the rate at which food prices increase — has been moderating since the start of the year. But in recent months, I feared that the rise in the prices of bread and cereals and meat products would change the direction of food inflation to a slight uptick.
Positively, they have been fairly outweighed by the continued moderation of other products. The slowing price inflation in products such as oils and fats, milk, eggs and cheese, fruit, and vegetables is a result of increased supplies and, to an extent, the stronger rand to the dollar helps in the case of imported vegetable oils.
With that said, I continue to monitor the prices of bread and cereals, and I believe the prices may increase in the coming months. The challenge arises from the mid-summer drought that led to a 19% year-on-year decline in maize production to an expected 13.34 million tonnes. White maize production is forecast at 6.35 million tonnes (down 26% year-on-year), and yellow maize at 6.99 million tonnes (down 12% year-on-year). Given the scale of the decline in the white maize harvest and the expected strong demand from Southern Africa, I expect white maize prices to remain reasonably elevated for some time and thus sustain the increases in bread and cereal products in the food basket.
But I do not expect the potential price increase to be substantial as the forecasts from the International Grains Council signal the possible ample harvest in the world. For example, the 2024-24 global wheat and rice production are estimated at 799 million tonnes (up 0.6% year-on-year) and 528 million tonnes (up 1.2% year-on-year), respectively.
South Africa imports nearly half of its annual wheat consumption, about 1.5 million tonnes yearly. Additionally, South Africa imports about a million tonnes of rice each year. Favourable global production conditions of these grains in the 2024-25 season and the possible subsequent price softening would be welcome developments in an importing country like ours. Moreover, the relatively firmer domestic currency will also help ease the costs of imported foods. This is a benefit for these grains and imported vegetable oils such as palm oil.
Beyond these grains, the meat price increases could remain mild in the coming months. The weak consumer demand remains a problem, particularly for red meat, and this could keep meat prices in check.
Because of bread and cereals and meats’ more significant weightings in the food basket, their price increases, if sustained, may change the direction of the headline food price inflation from moderation to a mild uptick in the coming months. Still, this should remain at relatively comfortable levels, not the major increases we saw last year.
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by Wandile Sihlobo | Jun 19, 2024 | Food Security
We continue to observe a welcome easing in South Africa’s consumer food inflation. The data released this morning by Statistics South Africa shows that consumer food inflation slowed to 4,3% in May 2024, down from 4.4% in the previous month.
This deceleration was primarily driven by price moderations in “bread and cereals”, “milk, eggs and cheese”, “oils and fats”, and “sugar, sweets and desserts”. Meanwhile, other products in the food basket experienced a mildly increase.
However, in the coming months, we may start to see a slight change in the direction of consumer food price inflation, with potentially a slight uptick as the price increases of the past few months in the grain-related food products begin to filter through to the consumer.
The mid-summer drought in South Africa resulted in a 25% decline in white maize harvest to an estimated 6,4 million tonnes. This led to a surge in white maize prices from the end of the first quarter to the second quarter.
However, these price increases have not been fully reflected in grain-related food products, partly due to the lag between farm gate prices and retail prices.
Despite this, we doubt if the increases will be sharper. The moderate wheat prices, supported by ample global supplies and a relatively firmer domestic currency, will somewhat mitigate the sharper price increase in this food category.
Beyond the grain-related food products, “meat”, “fish”, “fruit”, and “vegetable” prices may continue to show a slight uptick in the coming months.
These price movements and our expectations of the price changes in grain-related food products may be sufficient to slightly nudge up the food inflation trend from the moderating trend we have observed in the past few months, even if ever more slightly.
Globally, the FAO Food Price Index also shows a slight uptick monthly, mainly underpinned by increases in grains and dairy products.
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by Wandile Sihlobo | May 27, 2024 | Food Security
The pace of an increase in South Africa’s consumer food prices continues to slow. This is a welcome development as we spent the past few months worried about the faster pace of food prices.
The recent data from Statistics South Africa shows that South Africa’s consumer food inflation slowed to 4,4% year-on-year in April 2024 (from 4,9% in the previous month).
This moderation in inflation was underpinned by the deceleration across most food products, except for “fruit and vegetables”, which lifted mildly from the last month. The uptick in fruit and vegetables is mainly due to base effects, but these increases should remain mild as supplies of most products are abundant.
A closer look at other major food products in the food basket shows the moderation in meat prices. This reflects an improvement in meat supplies after some constraints at the end of 2023 because of avian influenza. There is now anecdotal evidence that the restocking process is underway, and there is improvement in poultry product supplies nationwide.
Moreover, the prices of rice and vegetable oils have continued to moderate due to increased global supplies, and South Africa is a significant importer of these products.
The wheat prices are also relatively lower than last year, although we have seen a price rally recently.
Global agricultural production
At the end of last year, when India, a significant role player in global rice production and exports, limited its exports, there were concerns about a long-lasting price increase. Indeed, in the months towards the end of 2023, global rice prices rallied, causing food security concerns.
But we now see some moderation, which reflects the reasonably higher supplies in various major rice producers, and that supply changes have adjusted somewhat since India’s decisions.
The prospects for the new season are also comforting. The United States Department of Agriculture estimates the 2024/25 global rice production at 527 million tonnes, up 2% from the previous season. This is on the back of the expected large crop in Asia.
In the case of what, the supplies globally remain plentiful, and the new season is promising. For example, the United States Department of Agriculture forecasts the 2024/25 global wheat harvest to be 798 million tonnes, up 1% from the previous season. The bigger harvests are expected in Canada, Australia, the US, Kazakhstan, and China.
Regarding global vegetable oil supplies, the United States Department of Agriculture forecasts the 2024/25 global soybean harvest at 422 million tonnes, up 6% year-on-year. This improvement is due to the expected large harvest in Brazil, Argentina and the US.
The global sunflower seed production is also at 57 million tonnes, roughly unchanged from the 2023/24 season.
Domestic currency moves are vital for food imports
Still, the exchange rate will also matter much in the months ahead, as South Africa imports ample wheat, rice, and palm oil.
Concluding view
Overall, there remains increased uncertainty about South Africa’s consumer food inflation path for 2024, with some upside risks in various products.
Still, the underlying factors are not all one-sided, and one has to reflect on the price movements and weighting of multiple products when considering their food price forecast.
Our primary concern remains the grains-related products in the food basket because of the domestic poor white maize harvest and the potential upside pressure on prices. South Africa’s white maize harvest is down 25%, estimated at 6,4 million tonnes in the 2023/24 season. The risks of other food products are less pronounced, and recent price developments reflect this view.
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by Wandile Sihlobo | Apr 28, 2024 | Food Security
Food inflation remains a topical issue in South Africa. The drought in some regions of the country has raised fears of a potential upside in food prices.
Fortunately, the available data continues to paint a better picture of the food price conditions. For example, the recent data from Statistics South Africa shows that the country’s consumer food inflation decelerated to 4,9% in March 2024 (from 6,0% in the previous month).
This is the lowest level since September 2020 and was underpinned by the deceleration across most food products, except for “fish”, which lifted mildly from the previous month. While it has been quite dry across the country, vegetable and fruit production has not taken a significant strain because all commercial production in South Africa is under irrigation, and load-shedding has been mild.
Moreover, meat prices rose at the end of 2023 due to supply constraints of poultry products on the back of avian influenza. But there is now anecdotal evidence that the restocking process is underway and there is improvement in the poultry products supplies. Therefore, the risks of further price increases have subsided somewhat.
The prices of wheat, rice, and vegetable oils have moderated due to increased global supplies, and South Africa is a significant importer of these products.
Risks
Still, I think this broad moderation path will continue for some food basket products only for the next few months. I see significant upside risks for the “bread and cereal products” in the food basket. This is because of the potentially poor white maize harvest from the recent heatwave and dryness.
There are notable crop failures in South Africa’s western regions, primarily white maize-producing regions (We see similar challenges in some yellow maize, other grains and oilseed regions).
At the end of March, the estimates from the Crop Estimates Committee placed South Africa’s 2023/24 white maize harvest at 6,3 million tonnes, down 25% year-on-year. This has led to a surge in white maize prices.
On April 15, the South African white maize spot price was up 36% year-on-year, trading at R5 450 per tonne. In addition, the higher demand for white maize in the broader Southern African region due to crop failure also adds to the price increases.
Over the coming months, part of the maize price increase will reflect on the “bread and cereal products” of the inflation basket.
Global developments
Aside from the domestic white maize supply challenges, there is ample wheat, rice, and vegetable oils supply on the world market. The International Grains Council forecasts the 2023/24 global wheat harvest at 789 million tonnes, well above the long-term average.
There is a lot of rice globally, with the 2023/24 global harvest forecast at 511 million tonnes, well above the long-term average. The 2023/24 global sunflower seed harvest is forecast at 57,9 million tonnes, well above average.
The stocks of these commodities are at comfortable levels; thus, the international grain prices have continued to moderate. For example, the Food and Agriculture Organization of the United Nations (FAO) ‘s Food Price Index, which measures the monthly change in international prices of agricultural commodities, averaged 118.3 points in March 2024, down 8% from last year’s corresponding period. The broad decline in grains and oilseed prices underpinned this moderation, again underscoring the importance of improved supplies in the 2023/24 season.
While early, the outlook for the 2024/25 season starting this month in the northern hemisphere is encouraging. The favourable production conditions in the 2024/25 season add to the continuous moderation of the grains and oilseed prices for the consumer’s benefit.
The exchange rate will also matter much, as South Africa imports roughly half of its annual wheat and rice consumption.
Outlook
Overall, the recent food inflation data release is a welcome development. Still, there is increased uncertainty about South Africa’s consumer food inflation path for 2024, with some upside risks in various products. The underlying factors are not all one-sided, and one has to reflect on the price movements and weighting of multiple products when considering their food price forecast.
Indeed, the outlook for vegetables and fruit remains optimistic. The recent drought did not significantly impact as South Africa produces all of the fruit and vegetables under irrigation. Our observations of the meat and eggs food component are also encouraging, as we see improvement in supplies and suspect there will be moderation in prices.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
by Wandile Sihlobo | Apr 3, 2024 | Food Security
Since the reports of El Niño-induced drought and crop losses emerged, there has been rising concerns about a potential surge in South Africa’s consumer food price inflation. This will be after months of moderation (at 6,0% in February 2024).
There have also been calls for the government to intervene and cushion households from potential food price surges. It remains unclear, however, if such assistance should be through policy instruments or household support in a form of food packages for the indigent.
There may even be a temptation to ask whether the government should limit agricultural commodity exports or policy options for price interventions. Such suggestions, while sympathetic to households, would be policy mistakes.
The appropriate policy action for the South African government should be a dose of do‐nothingism. Any intervention would potentially have negative unintended consequences in the next production season and leave the country with long-term food security issues.
We should also appreciate that the current drought will likely not result in a broad increase in food products. The risks currently lie in white maize. There are notable crop failures in the western regions of South Africa, which are primarily white maize-producing regions. It is unclear what the white maize harvest will be as the weather conditions remain challenging. At the end of March, the estimates from the Crop Estimates Committee placed South Africa’s 2023/24 white maize harvest at 6,3 million tonnes, down 25% year-on-year. This will still be sufficient to meet the domestic needs if it materializes.
While some may argue that ample maize supplies in the global market could cushion South Africa, the challenge with white maize is that it is not as widely traded. The bulk of global maize supplies is yellow maize. Indeed, there is a lot of maize in the world, with the International Grains Council (IGC) forecasting the 2023/24 global maize harvest at 1,2 billion tonnes, up 6% year-on-year. However, this will primarily be yellow maize, and the demand for white maize will likely increase.
In addition, the demand for white maize will be a South African challenge and a Southern African regional challenge. Therefore, there could be a disconnect between the domestic white maize prices and the general global maize prices, which are likely to continue softening due to improved supplies. For example, a large spread exists between South Africa’s futures prices of yellow and white maize following reports of bad crop conditions. South Africa’s white maize spot price is trading around R5 200 per tonne, while yellow maize is hovering at R4 200 per tonne. This signifies the challenge with white maize supplies.
The products that play favourably for South Africa are wheat and rice, which South Africa remains a significant importer of. There are ample supplies of these products in the global market. The IGC forecasts the 2023/24 global wheat harvest at 789 million tonnes, well above the long-term average. There is a lot of rice globally, with the 2023/24 global harvest forecast at 511 million tonnes, well above the long-term average.
The stocks of these commodities are at comfortable levels; thus, the international grain prices have continued to moderate. For example, the Food and Agriculture Organization of the United Nations (FAO)’s Food Price Index, which measures the monthly change in international prices of agricultural commodities, averaged 117.3 points in February 2024, down 1% from its revised January level and 11% from last year’s corresponding period. The broad decline in grains and oilseed prices underpinned this moderation, again underscoring the importance of improved supplies in the 2023/24 season.
The exchange rate will also matter much, as South Africa imports roughly half of its annual wheat and rice consumption.
Another major factor driving South Africa’s food inflation this past year was the increase in prices of vegetable and poultry products. The poor harvest caused the vegetable price increases after load-shedding at the start of the year, undermining crop quality. Things have changed this year. While it has been quite dry across the country since the beginning of February 2024, vegetable production has not taken a strain because all commercial production in South Africa is under irrigation, and load-shedding has not been intense.
Moreover, meat prices rose at the end of 2023 due to supply constraints of poultry products on the back of avian influenza. But there is now anecdotal evidence that the restocking process is underway and there is improvement in the poultry products supplies. Therefore, the risks of further price increases have subsided somewhat.
Overall, there is increased uncertainty about South Africa’s consumer food inflation path for 2024. However, the underlying factors are not all one-sided, and one has to reflect on the price movements and weighting of various products when considering their food price forecast for the year.
From a policy perspective, the best approach should be to do nothing. If fiscal space permits, support to the farmers, especially in the hardest hit areas would be appropriate.
Follow me on Twitter (@WandileSihlobo). E-mail: wandile@agbiz.co.za
