Paul Makube, Senior Agricultural Economist at FNB Business takes a look at how the drought and subsequent recovery have impacted four basic breakfast foods, namely eggs, maize, dairy and bread.
It’s said the agricultural sector has survived the worst of the drought that has gripped South Africa in the past three years. The recent rains have, however, positioned the sector favourably in parts of the country.
• Dairy:
This industry has seen pastures improving, thereby reducing the need for frequent irrigation, which reduces electricity costs. In addition, supply outlook for grain crops has improved and the subsequent decline in prices from the second half of 2017 indicates that a reduction in food manufacturing costs is eminent.
Producer prices are expected to approach the long-term average share of approximately 37 per cent of the retail prices.
“We should see stable to firmer demand with new marketing strategies to reach more consumers in the country. The rebound in the industry following a devastating drought looks positive,” explained Makube.
• Eggs:
The egg market is stable and producer prices remain at profitable levels. Prices at consumer level have also remained relatively stable with a steady increase on an average of six per cent in January 2017 year-on-year (or as compared with the corresponding ones from a year earlier).
“We’ve seen a lot of suppliers enter the eggs market, This has increased supplies and placed profitability under pressure. Nonetheless, producers do have an option to reduce their stocks by shortening the life-cycles of their layer hens. The improved grain production outlook bodes well for feed prices, as feeding margins improve towards mid-year,” added Makube.
• Bread:
According to statistics issued by the Agricultural Business Chamber (Agbiz), South Africa’s total bread production grew by 12 per cent year-on-year (y/y) in December 2016 to a total of 182 million loaves. The growth came from brown bread, which moved up from 82 million loaves in January to 90 million loaves.
In fact, from October to December 2016, brown bread production was consistently higher than white bread. Prices of loaves of white and brown bread (700g) increased by 14 per cent and 13 per cent y/y at R13,60 and R12,28 respectively. The price of a loaf of white bread however slowed in January 2017, finishing up by 11 per cent y/y while that of brown bread was up by 13 per cent y/y.
• Maize:
For the first time in 2017 the price of the staple food, white maize, has fallen below R2 000 per ton. It is currently trading at R1 917/ ton, an advantage for food inflation which has remained sticky at double-digit levels of 11,8 per cent y/y in January 2017. The latest production estimates indicate a harvest of 13,9 million tons of total maize, with the white variety up by almost 144 per cent y/y at 8,3 million tons.
“While this is the first production estimate and is likely to change as the season progresses, our view is that it is likely to improve, given the good production conditions. However, if rains persist, the excessive moisture coupled with early frost in some areas may result in a slight downward revision to the current crop estimate in the months ahead,” cautioned Makube.
“The continued fall in maize prices on a year-on-year basis is expected to begin to filter through into the feed prices. Maize is a major input cost component, and a reduction in prices effectively means we will see feed prices beginning to slowly stabilise. Agriculture is not out of the woods yet, but it is on its way out of the red and back into the positive,” concluded Makube.
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