Food price inflation in SA is likely to remain in double digits this year even as global food inflation continues to ease.
Tracy Davids, manager for commodity markets and foresight at the Bureau for Food and Agricultural Policy (BFAP), said domestic consumers will remain under pressure for some time as they face high food and energy prices while experiencing persistently slow increases in real income.
“World food prices have come down, but in SA this decline has been offset by a weaker exchange rate. Going forward food prices will continue to be influenced by a number of uncertainties, including extreme weather events and load-shedding,” she said at the launch of the bureau’s 10-year agriculture market outlook for SA on Wednesday.
Though lower global agricultural commodity prices are likely to filter through to local markets in the latter part of the year, SA is likely to experience only a modest easing in food inflation, she said.
Double-digit inflation
With grain and meat prices easing, food inflation could slow to below 10% for the year from 12.4% in 2022. But the gains of lower commodity prices are likely to be offset by the effects of load-shedding and exchange rate depreciation. As a result, double-digit inflation rates could persist in 2023, reaching about 13%, said the bureau.
Sustained easing in agricultural commodity prices could, however, see a slowdown in average food inflation in 2024 to about 5%.
According to the report published by the bureau, the extra expenditure agroprocessors incur in running generators during load-shedding more than doubles their energy costs.
“Such additional costs to physically process the same amount of output, combined with additional energy costs at virtually every step of the value chain, from farm to retail, will put significant strain on the SA economy, regardless of who will absorb such costs,” it said.
Load-shedding affects the entire value chain. It increases production costs and reduces production capacity. These factors are likely to drive inflation in food value chains.
The report states that load-shedding has demand-side effects. With consumer spending power increasingly strained, it is unlikely that the full costs of load-shedding can be added to final retail prices.
“Our view is therefore that increased load-shedding in 2023 compared to 2022 can add about 1.7 percentage points to food inflation figures.”
Exchange rate
The effect of the weaker exchange rate is equally pronounced. The rand weakened 13.3% over the first five months of the year, which will have “a notable impact, keeping food inflation elevated”. Estimates published by the bureau indicate that this can add up to two percentage points to average food inflation if exchange rates were comparable to those at the beginning of 2023.
The analysis shows that low-income consumers, who rely on staples such as maize meal and bread, faced far steeper food basket price increases than higher-income consumers. The cost of a single serving of maize meal was 34% higher in the first quarter of 2023 than that of the first quarter last year. Potato and bread prices were up about 18%, milk 16%, eggs 6%, and fresh and frozen chicken 9%.
According to the bureau, the price of a “maize meal only” basket, which tracks the price of sustaining a family of four just on maize meal, was 26% higher in the first quarter of 2023 than it was in the first quarter of 2022. Meanwhile, the price for a balanced food basket rose 9%.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.