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% 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 under way 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 15 April, 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’ 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, 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 have a significant impact as South Africa produces all 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. DM
Banks say their investment options beat inflation. Companies proudly inflation-adjust wages. Both are deceptive. My grocery bill just passed 10x what it was 15 years ago, with no real change in lifestyle. That takes 17% inflation per year compounded. Remember, you are not the typical South African consuming the typical basket of goods used for the official inflation rate calculation – the typical South African is unemployed and doesn’t live in suburbia. When companies (or the government) use that rate to reassure you that you’re doing OK, do a reality check against your own personal inflation rate.
agreed – no evidence of any moderation in prices which increase over 20% year on year per basket of ‘normal’ household goods. When they go “up’, they never come down again. Consumers have lamentable memories, so the pillage just goes on.
You have to love how the media, government, banks and economists claim that inflation is coming down. They can bulls##t all they like, but it won’t change the reality of how expensive things have become. The reality in the real world is very different.