Food inflation: the culprit is primarily global developments – economist

Food inflation in South Africa is primarily caused by global developments and not domestic events. While consumers and farmers worry about the impact of the heavy rains on food inflation, they also have to consider that agricultural commodity prices were already elevated, paving the way for food inflation.

Higher food prices are evident in the monthly food basket survey of the Pietermaritzburg Economic Justice and Dignity group for low-income consumers that shows that the price of the basket increased year-on-year by R349.82 (8.6%), from R4,051.20 in January 2021 to R4,401.02 in January 2022.

The prices of 15 of the 17 core foods in the basket increased, as well as 35 of the 44 items in the basket, with increases across the board. Prices that increased the most from January 2021 to January 2022 were:

• Sugar beans (5 kg) increased by R16.02 (10%)
• Cooking oil (5 l) increased by R16.02 (30%)
• Frozen chicken portions (10 kg) increased by R53.76 (17%)
• Eggs (60) increased by R13.24 (13%)
• Gizzards (2 kg) increased by R15.63 (24%)
• Chicken livers (2 kg) increased by R9.58 (18%)
• Beef liver (2 kg) increased by R26.21 (37%)
• Beef (2 kg) increased by R18.60 (12%)
• Wors (2kg) increased by R14.36 (12%)
• Tomatoes (6 kg) increased by R37.58 (45%)
• Butternut (10 kg) increased by R18.66 (26%)
• Tinned pilchards (400g x 6) increased by R11.74 (10%)
• Polony (2.5kg) increased by R6.79 (13%).

While middle-income consumers have started to complain about the price of tomatoes, low-income consumers have to find another R349.82 in their wages to pay for these increases or just remove these nutritious foods from their baskets.

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Uptick in food inflation already in 2021

Wandile Sihlobo, chief economist of the Agricultural Business Chamber of South Africa (Agbiz), says the data for the first eleven months of 2021 shows that South Africa’s consumer food price inflation averaged 6.5%, compared to 4.6% in 2020.

“The products in the food inflation category, such as bread and cereals, meat, oils and fats and vegetables primarily underpinned the uptick in headline consumer food price inflation. All this happened when we had one of the best agricultural seasons in years.”

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This is where high food prices come from

Where do the high food prices come from then? Sihlobo says the price drivers were not domestic events, but global developments, with the large crop harvests in South Africa contributing less towards price determination here than the rising crop demand in Asia or a poor harvest in South America.

“The price drivers were production constraints in South America, combined with rising demand for oilseeds and grains in China and India. South America had a poor crop harvest in 2021, primarily for maize, due to the La Niña weather phenomenon that typically leads to below-average rainfall in the Northern Hemisphere,” he explains.

The combination of these factors caused upward pressure on global grain and oilseed prices. South Africa, as a relatively small player in global agriculture, is linked to the global market and therefore the general increase in global prices overshadowed the improved domestic crop supply.

Sihlobo says these price drivers have not subsided, with South America still experiencing adverse weather conditions and low harvests, while the demand for grains in China and India remains relatively firm.

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Possible crop decline not only food inflation driver

He says therefore the possible decline in crop harvest in South Africa will not be the only driver of food prices this year. “Much of what consumers will pay for food will also be the result of these global events that we cannot control.”

Sihlobo also points out that there is currently no way to tell what the volume of the summer crop harvest will be and whether it will decline so much that South Africa will have to import some.

“I think we will have a poorer harvest than the glowing 2020-21 one, but I doubt that we will be at a point where we have to import.”

His initial worry about food price inflation, before the heavy rain, was the price of meat, which decelerated somewhat in November, along with oils and fats.

“Data from the Red Meat Levy showed that our cattle slaughtering activity was at relatively lower levels compared to 2020. South Africa is also a net importer of vegetable oils and fats and these prices have remained elevated in the global market.”

However, he thinks that it is still possible that food price inflation could be somewhat moderate this year compared to last year, although he says that a better view can only be formulated when there is clarity about the potential crop size for the year.