South Africa's Food Inflation: A turnaround in sight amidst global and domestic challenges
To feed a family of four — consisting of two adults, an older and a younger child — with basic healthy eating food for a month costs an average of R3,614. Around R443 more than a year ago.
This is according to the latest research by the Bureau for Food and Agricultural Policy (BFAP) which showed that South Africa’s food inflation was still stubbornly high at 11.8 percent — but was showing signs of decline.
The BFAP Thrifty Healthy Food Basket (THFB) measures the cost of basic healthy eating for low-income households in South Africa.
The methodology considers national nutrition guidelines, typical food intake patterns of lower-income households, official Stats SA food retail prices, and typical household demographics and consists of a nutritionally balanced combination of 26 food items from all the food groups,
The BFAP “Food Inflation Brief” that was released on Monday (26/06/2023) also showed that South Africa’s food market was a tale of contradictions – on one hand, we have bumper summer crops and a decline in international grain prices, while on the other, we see import-parity on wheat prices as well as high fruit and vegetable prices.
Add in meat price inflation, exchange rate dynamics, load shedding and it becomes hard for the everyday South African consumer.
The good news for South Africans though was that there are signs of a “solid turnaround” on inflation which augurs well on the pockets of consumers.
According to the research, the country is set for another flourishing summer crop, particularly for maize and soybean, which is expected to exceed 16 million tonnes.
This robust yield means that our exportable maize could surpass 3.5 million tonnes for the third year running, leading to lower domestic prices. The record soybean crop should follow a similar trend, with prices remaining at export-parity levels.
However, South Africa’s heavy reliance on wheat imports (almost half of our needs) means that domestic prices are set at import-parity levels, remaining susceptible to global price shifts.
Moreover, the impact of foreign exchange rates also plays a key role in defining domestic prices.
At the global level, May 2023 saw a continuing dip in grain and oilseed prices, largely due to the extension of the Black Sea Grain Initiative and expectations of abundant global supply for the 2023/24 season.
This decline in prices was further driven by anticipated higher maize production from heavyweights like Brazil and the US, coupled with a decrease in Chinese purchases from the US.
South Africa's meat price inflation has begun to slow, despite marginally higher international prices, the BFAP research reveals.
This slowing trend may seem surprising, especially given the increase in international poultry, bovine meat, and pig prices, and the fact that a weaker Rand makes imported products costlier.
However, it mirrors the strain on consumer spending power due to rising interest rates, slow economic growth, and continuous load shedding. Lower feed prices, thanks to our bountiful maize crop, have also offered some relief to producers.
In the realm of fresh produce, South African firms expanded their European vegetable footprint in 2023, despite international turbulence and climate-related issues compounded by recent trade restrictions.
This has reshaped domestic market dynamics, particularly for onions and dried vegetables. However, domestic prices for vegetables have spiked due to reduced volumes and high demand, with onions, potatoes, tomatoes, and even cabbage seeing significant price increases.
This trend highlights the growing demand for relatively affordable produce, particularly in an economy where consumer spending power is limited.
Despite the seasonality of fruit production, fruit prices have remained stable and even lower year-on-year due to increased production volumes driven by past incentives.
With the exception of vegetables, producer prices in South Africa are showing a downward trend.
Lower costs for agricultural inputs and a continued decrease in the price of diesel are expected to influence producers' future planting decisions and supply prospects.
In an encouraging sign, May 2023 saw a sharp drop in food inflation rates, marking a potential turnaround, the BFAP said.
This downward trend, expected to continue, reflects strain on consumer budgets, high base effects, the relative recovery in the Rand's value, and recent lower producer prices starting to reach retail markets.
However, the wildcard in this game remains the high-risk environment, both domestically and globally, that could trigger sharp fluctuations in the Rand and drive food prices back up