Since the news that SA could be hit by yet another drought, a frequent topic of discussion has been its possible implications on SA’s food price inflation. This comes at a time when food price inflation has generally been subdued, having averaged 2.9% year-on-year in the first nine months of 2019.
This is because of relatively lower meat, milk, eggs and cheese prices, among other products, which managed to overshadow the price increases of grain-related products over this period.
The lower consumer demand has also played a part in this inflation development as consumer food price movements have not necessarily moved in conjunction with producer price inflation as has been the case in the past.
Although this year’s drought is a concern, current indications, such as soil moisture, near-term weather forecasts and meat-market dynamics, suggest that it might not be as intense as the 2015/2016 drought in which SA’s food price inflation was at double-digit highs for some time.
There are three major reasons for this.
First, over the past two weeks, there has been a general improvement in SA’s soil moisture content and that has allowed farmers to commence with summer crop plantings, specifically in Mpumalanga, Limpopo, KwaZulu-Natal, the eastern Free State and the Eastern Cape. Estimates from various farming groups and our conversations with farmers suggest that about a third of the expected maize hectares have now been planted, mainly in Mpumalanga and the eastern Free State.
This, however, is way behind the optimal maize planting window for these provinces, which is typically from October 15 to November 15. There is a risk of frost later in the season from planting beyond this date that impacts yields. But be that as it may, the plantings spurred by improved soil moisture might benefit from potential maize price increases in the near term.
Second, the near-term weather forecasts from wxmaps.org, a George Mason University-based weather forecast, show prospects of 16mm and 60mm of rainfall this week over the summer rainfall areas of SA. This is with the exception of the Eastern Cape that is expected to remain dry and warm throughout the week. This would generally further improve soil moisture and subsequently crop-growing conditions in areas that have started planting.
As with the previous point, this would keep maize prices hovering around their current levels. On November 14, yellow and white maize prices traded at about R2,637 and R2,692 per tonne, which is up by 8% and 12% year-on-year, respectively.
Foot and mouth
Third, meat, which accounts for more than a third of SA’s food price inflation basket, could remain subdued in the near term. The possible marginal upticks will mainly be because of base effects. Last week, another case of foot-and-mouth disease in the Molemole district of Limpopo was highlighted.
The consequence of this is likely to be a temporary ban on SA’s meat exports. Mozambique, Zimbabwe and eSwatini are some of the countries that have already placed a ban on SA livestock. This could result in a slight increase in domestic meat supply thereby keeping meat prices at fairly lower levels in the near term. This bodes well for consumer price inflation (CPI), but the same cannot be said for farmers.
Overall, we had initially estimated SA’s food price inflation for 2020 at 4.9% year-on-year and we will revisit this estimate at the end of January 2020 when there is concrete evidence about the actual summer crop area planted and weather outlook for the rest of the 2019/2020 production season. The main upside risk for food price inflation in 2020 is the weather.
The outlook suggests that SA could receive below normal rainfall from the end of January 2020. This includes all regions, and is, therefore, a concern even for the western and central regions of the country, which, in the near term, could receive above-normal rainfall between November 2019 and January 2020, according to the SA Weather Service.
With that said, the food price inflation outlook is much better than during the 2015/2016 drought years. Also, worth noting is that the global agricultural environment is likely to have minimal impact on SA’s food price inflation in the medium term. The product SA is exposed to the most is wheat, and there are large supplies of it in the world, keeping prices at comfortable levels. This is beneficial to the SA consumer.
• Sihlobo is head of economic and agribusiness research at the Agricultural Business Chamber.
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