Oil has been such an economic bogeyman in recent times, hogging the headlines, that not noticed is as severe a threat — food inflation.
Food staple maize has been trading internationally at record highs, driven by the world’s move to energy diversification to produce bio-fuels as an alternative to fossil fuels.
In South Africa maize prices soared this year with maize trading at R1 300 per ton on Monday, up from R500 per ton last year, according to futures company Farmwise.
The high staple prices are also in part driven by less planting last year, but the record prices have led farmers to scramble to make new plantings.
Meat prices have also been climbing. Stewing beef was 30% more expensive than the same month in 2005, according to research released by the National Agricultural Marketing Council.
But while price hikes in 2002 raised concerns about uncompetitive food markets, analysts say cyclical patterns of supply and demand lie behind the volatile maize and meat prices this year.
Food prices had a deflationary impact in 2005, but this year pose a “significant risk” to inflation, Reserve Bank Governor Tito Mboweni said last week. He said meat contributed as much to inflation in August as petrol and diesel.
Petrol and diesel prices increased year-on-year by 22,1% in August, but have a lower weight than food in the basket of goods and services that the Bank uses to calculate inflation.
World oil prices declined to less than $60 in August, but Mboweni cautioned that the tight supply and demand conditions in the markets, coupled with oil-price sensitivity to geopolitics, meant that oil prices are still a risk to inflation.
Vice-chairperson of the South African National Consumer Union Lillybeth Moolman warns that the 35% year-on-year hike in the maize price should set off alarm bells because of lessons learned in 2002.
In 2002, food inflation ranged from 23% for very poor income groups to 19% for very high income groups. The maize price, which rose from R5 to R10 for 10kg to R25 to R30 in a few months, lay behind the high inflation.
These figures come from a paper by the food price monitoring committee, which was established by the department of agriculture in 2002 to review food prices and detect anti-competitive behaviour in the food supply chain.
To fulfil that mandate, the National Agricultural Marketing Council this month released a cost review based on a basket of 75 goods.
The council’s findings differ from Statistics South Africa data because of methodological differences, said council member Johann Kirsten.
Using Statistics South Africa data, the Reserve Bank reported that maize inflation was “relatively low” at 4,7% in August, but the council’s findings show that the price level of maize meal exhibited an average increase of 35,5% year-on-year.
Kirsten said grain prices had increased after record low prices in the previous season caused farmers to plant less grain for this year’s harvest.
“I forecast that food inflation will probably do 7% to 8% for the next couple of months,” he said, adding that it depended on the weather over the next three months. He said there is a “high intention” among farmers to plant and seed sales were up recently.
Futures trader Rudi Swanepoel said world demand for grain was high because of increased efforts overseas to produce bio-diesel and ethanol.
The world maize supply is at a 30-year low, he said, which contributed to high domestic prices along with the weakened currency. He predicted that domestic grain prices would stay high for the next two to four years.
Meat prices have also increased dramatically, according to the council’s food price review. Fresh beef product prices increased by 26% at the retail level.
Agrimark Trends found that in September beef producer prices increased by more than 40% year-on-year for grades A, B and C meat.
Pieter Cornelius at Agrimark Trends said meat prices had increased because people were building their herds and sending fewer animals to slaughter.
South Africa’s supply from international markets declined this year as foot-and-mouth disease concerns shut out imports from Brazil, he said. Imports from Australia and New Zealand also decreased as those countries had diverted exports to the United States.
Price choice
Meat prices are up countrywide, but location seems to account for the biggest differences. You can pay anything from R38,95 to R65 a kilogram for T-bone, a 60% difference, depending on where you shop.
A quick survey of butcheries in Johannesburg found that the most expensive T-bone steak, at R65 per kg, is sold at Thrupps in Illovo and at the Craighall Meat Centre.
T-bone costs R55,95 per kg at the Pick ‘n Pay supermarket in Killarney and R42,95 per kg at the Pick ‘n Pay family market in Brixton. At the Roodt Meat Florida butchery in Roodepoort, T-bone costs R49,95 per kg. It costs R49,80 per kg at The Butcher’s Wife in Midrand, and R47,99 per kg at the Shoprite Checkers in Dobsonville. Simply Meat in Bruma sells T-bone for R46,95 to R48,95 per kg, and Muscat Holdings in City Deep charges R38,95 to R41,95 per kg.