Food prices pain looming

PERFECT STORM: COST PRESSURES ALL GOING UP

Hard-pressed consumers, particularly the poor, will battle steep price hikes as the weak rand, drought and sugar taxes push up costs.

As ordinary consumers battle host of upward pressures, food prices will likely hit the poor hardest.

Hard-pressed consumers, particularly the poor, will battle rising food prices in coming months as the weak rand, rising inflation, the drought and sugar taxes push up input costs.

Efficient Group chief economist Dawie Roodt expects food inflation to hit 12% by the end of the year, below other bearish expectations of 15%.

Gathering storm

Other factors such as high unemployment levels, tepid economic growth and the country’s potential credit rating downgrade offer consumers scant relief.

Cereal inflation has already risen by 52% in recent months, a double blow for the poor, who spend a great percentage of their income on food, particularly maize.

The benchmark consumer price inflation (CPI) for food and nonalcoholic beverages increased by 8.6% in February, according to the latest StatsSA figures.

Overall, CPI was 7% during the period, the highest rate since May 2009, when the rate was 8%.

Food manufacturers will feel the pain first. The El Nino drought, one of the worst on record, could intensify and cause more deterioration.

Estimates for crop harvests are bleak. The white and yellow maize are expected to decline by 25% this season. Extra maize will have to be imported, pushing up prices, particularly for food manufacturers dependent on maize by-products.

Stanlib chief economist Kevin Lings says the late rains forced many farmers to plant late.

“The [drop in] crop harvest estimates will be worse if we don’t get follow-up rain.”

Rising electricity, labour and wheat import costs add more upward price pressure.

Food manufacturers say prices of raw materials, including maize, wheat and milk – which affect staple household items such as bread, pasta, dairy products, flour and breakfast cereals – have all risen.

Food and beverage manufacturer Pioneer Foods, owner of the brands Sasko, Bokomo Cereals, White Star Super Maize Meal, Spekko Rice and Ceres Fruit Juices, says consumer price increases are “inevitable”.

SA’s grocery retailers have been holding off on food price increases in a battle for market share, but it can’t last.

Shoprite had the lowest internal inflation for the six months to December 2015 at 2.2%, compared with 5.2% in the same period.

Widening gyre

Woolworths, which traditionally targets consumers in the LSM 8 to 10 segments, experienced a food price movement of 5.7% for the 26 weeks to December 27 2015. Pick n Pay and Spar are yet to report their interim earnings.

Miles Dally, CEO of RCL Foods that owns the brands Supreme Flour, YumYum, Ouma and SunBake, expects consumer belt-tightening this year.