INFLATION UPTICK ON THE CARDS
THE AGRICULTURAL Business Chamber (Agbiz) foresees a further uptick in food price inflation.
Food price inflation increased to 4.6 percent year-on-year in July, from 4.5 percent in the previous month.
Agbiz said in its weekly Agricultural Market Viewpoint that the increase was primarily underpinned by a slight uptick in the prices of bread and cereals, fish, oils and fats.
“With the current higher maize prices, which last week crossed the R3 000 a ton mark, we are inclined to believe that there could be a further uptick in food price inflation, although probably mild, in the coming months,” said Agbiz chief economist Wandile Sihlobo.
Agbiz said at the beginning of the year, when the country saw prospects for a good maize, fruit and vegetable harvest, the only upside risk to food price inflation was meat, with the underpinning driver the base effects.
“This is because in 2019 South Africa’s meat prices were largely under pressure on the back of increased supply when beef exports were temporarily suspended because of the footand-mouth disease. Another key risk that we later added was a poultry price potential increase after South Africa lifted the import tariff,” said Sihlobo.
After considering these factors, Agbiz said that food price inflation would average about 4 percent this year, from 3.1 percent in 2019, he said.
Agbiz said the general increase in grain prices had added to the upside risks to food price inflation.
“The bread and cereals component of the food basket, which we initially did not view as potentially adding upswings, should be viewed differently now. July 2020 data already provide evidence to this point, as this food category was among the key drivers of South Africa’s food price inflation during the month.
“Also, maize prices have been steady at fairly higher levels for some time, which again supports the view that this adds to upsides risks to food price inflation,” the report said.
Maize, which was said to account for more than half of global grains in volume terms, the 2020/21 harvest projection of 1.17 billion tons was roughly unchanged from the previous month’s estimate. This was 4 percent higher than the 2019/20 production season, with potential increases expected to originate from the US, parts of sub-Saharan Africa, Brazil, Canada and Ukraine, among others.
This would offset the projected harvest decline in Argentina, India, parts of the EU and Vietnam, whose crop has been negatively affected by unfavourable weather conditions, dryness in Europe and flooding in Asia.
Agbiz said although the global grains market would be well supplied in the 2020/21 season, recent weather disruptions and changes in demand have led to price increases that were not conducive for importing countries, such as South Africa.
University of Zululand-based economist Professor Irrshad Kaseeram said the price increases were being felt on the ground.
“Looking at the prices of meat currently, it has increased by R20 per kilogram on average due to the significant culling that happens to the animals during the foot-and-mouth disease outbreak period, which led to fewer animals currently. The global impact on maize prices was also a factor. All these are key considering the fact that South African consumers were significant meat and maize consumers,” said Kaseeram.
“The government will need to implement the necessary reforms fast to create jobs and attract investment. Unfortunately, South Africa is not very attractive currently,” said Kaseeram.