SA’s consumer food inflation slows

SA’s consumer food inflation slowed to 6.0% in February 2024, from 7.0% the previous month.

This was underpinned by a decrease across most food products, except for sugar, sweets and desserts, which remained mostly unchanged.

We expect this broad moderation path to continue for most products within the food basket over the near-to-medium term.

However, there are significant upside risks for bread and cereal products because of the potentially poor white maize harvest, on the back of the heatwave and lack of rain.

There are notable crop failures in western regions, which are primarily white maizeproducing regions.

It is unclear what the white maize harvest will be as the weather conditions remain challenging.

At the end of February, estimates placed SA’s 2023-24 white maize harvest at 7-million tonnes, down 17% yearon-year.

This estimate will likely be lowered over the coming months.

We have gone through March with virtually no rain in the white maize regions.

While some may argue that ample maize supplies in the global market could cushion SA, white maize is not that 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 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 an SA challenge and a Southern African regional challenge.

Therefore, there could be a disconnect between domestic white maize prices and general global maize prices, which are likely to continue softening due to improved supplies.

For example, a large spread exists between SA’s future prices of yellow and white maize after reports of bad crop conditions.

At the end of the week of March 22, SA’s white maize spot price closed at R5,159 per tonne, while yellow maize was R4,258.

This signifies the challenge with white maize supplies.

The products that play favourably for SA are wheat and rice, which the country remains a significant importer of.

There are large supplies of these products in the global market.

The IGC forecasts the 202324 global wheat harvest at 789m tonnes, well above the long-term average.

There is a lot of rice globally, with the 2023-24 global harvest forecast at 511m tonnes, also 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 Organisation of the UN’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, as SA imports roughly half of its annual wheat and rice consumption.

Another major factor driving SA’s food inflation this past year was the increase in prices of vegetable and poultry products.

The poor harvest caused vegetable price increases after load-shedding at the start of the year, undermining crop quality.

Things have changed now. 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 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 anecdotal evidence that the restocking process is under way and there is improvement in poultry product supplies. Therefore, the risks of further price increases have subsided somewhat.

Overall, there is increased uncertainty about SA’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. Wandile Sihlobo is the chief economist at the Agricultural Business Chamber of SA and a senior fellow in Stellenbosch University’s department of agricultural economics. His latest book is “A Country of Two Agricultures”.

The risks of further price increases have subsided somewhat’