Food inflation expected to remain high in 2022

The outlook for consumer food price inflation is not as bad as it was in 2021, but is expected to remain high in 2022.

Wandile Sihlobo, chief economist at Agbiz, said that although South Africa had one of its best agricultural seasons in years in 2021, the large local harvest contributed less towards price determination than rising crop demand in Asia, the poor harvest in South America, and the increase in shipping costs due to container shortages.

“These drivers have not subsided and remain a threat,” he said.

Heavy rainfall, which damaged crops, delayed planting, and made it difficult for farmers to perform certain agricultural practices in some parts of the summer rainfall region, could add additional pressure.

“It seems as if the grain harvest might not be as good as in 2020/21, but we won’t have to import supplies other than the grain we typically import, such as wheat. The picture will [become clear] when the Crop Estimates Committee releases [its] planting data.”

He added that farmers in the Free State, Mpumalanga, North West, Limpopo and KwaZulu-Natal who participated in a recent Grain SA survey ranked excessive rainfall as the most significant threat to crops this year, compared with frost, crop disease, weed, and hail damage.

“Such a result would have been unthinkable a few years ago, when the major climate-related risk for most areas of South Africa was drought,” he said.

The meat industry was also still in a herd-building phase following the drought of 2015/16, and ongoing outbreaks of foot-and-mouth disease had also led to farmers reducing their slaughterings, whereas outbreaks and concomitant temporary export bans in the past resulted in somewhat increased meat supplies.

Consumer food price inflation peaked at 7,4% in August 2021, the highest level since March 2017. Thereafter, it slowed to 6,7% in October 2021 thanks to a deceleration in product price inflation across the food basket, except for an uptick in vegetables due to supply constraints in the northern regions.

Data available for the first 11 months of 2021 shows that South Africa’s consumer food price inflation averaged 6,5%, compared with 4,6% year-on-year in 2020.

Sihlobo said inflation did not necessarily translate into better margins.

“Farm profit margins will remain squeezed due to higher input costs, with fertiliser prices alone being over 30% higher during the 2021/22 planting season than last season, and possible lower yields due to excessive moisture.” – Glenneis Kriel

CONSUMER FOOD PRICE INFLATION PEAKED AT 7,4% IN AUGUST 2021