South Africa’s annual inflation rate eased in July to 4.7%, down from 5.4% in June 2023, the lowest reading since August 2021, according data from Statistics South Africa. (Dwayne Senior/Bloomberg via Getty Images)
After eight months of South Africa’s food inflation at levels above 12.3%, May 2023 data decelerated to 12.0%, down from 14.3% in April.
The food product prices primarily underpinning this moderation in food inflation are bread and cereals, meat, fish, oils and fats, and fruit.
Slowing food inflation could be a central theme for the second half of the year (assuming that there are no significant weaknesses in the rand/dollar exchange rate), and the products mentioned above will continue driving the trend.
More specifically, red meat prices, which have softened at the farm level, should continue on this trend at the retail level in the coming months.
Fruit prices will probably remain on a similar declining trend as the harvest across South Africa continues, and domestic supplies have improved.
The decline in oils and fats products aligns with what we see in the global environment, because South Africa still imports all its palm oil usage.
For example, in May 2023, the United Nations’ Food and Agriculture Organisation (FAO) vegetable oil price index was at 119 points, down 48% year-on-year.
The FAO states that “international palm oil prices fell markedly from April, as protracted weak global import purchases coincided with expectations of rising outputs in major producing countries”. This is a welcome development for importing countries such as South Africa.
With that said, the relatively weaker rand/dollar exchange remains a risk to the prices of imported products that could reduce the gains for local consumers. This mainly applies to rice and wheat, becauseSouth Africa is a net importer of these products.
Moreover, the relatively lower farm-level maize prices will filter into the retail product prices mainly in the second half of the year’s data.
One aspect that researchers often forget is that there is a lag of three to five months between farm and retail prices of some products, thus, the decline in farm-level prices is not immediately apparent on retail shelves.
The price changes will also not be equal because of associated processing, packaging, distribution and labour costs. Still, these will not change the possible slowdown in price inflation.
Moreover, the base effects will also help soften consumer food inflation in the year’s second half.
One aspect that some people continue to worry about is the effect of load-shedding on food prices. I believe that these load-shedding may continue to influence prices for the next few months.
Nonetheless, the various interventions to ease the load-shedding burden on farmers, such as load curtailment, expansion of the diesel rebate to the food value chain and, most recently, the launch of the Agro-Energy Fund, support the production conditions.
The 2022-23 maize harvest is estimated at 16.1 million, 5% higher than the 2021/22 season’s harvest and the third-largest harvest on record. The soybeans harvest could reach a record 2.8 million tonnes.
South Africa’s sugar cane crop will probably increase by 3% to 18.5 million tonnes in 2023-24. Other field crops and fruits also show prospects for decent harvest this season.
But the effectiveness of these energy support measures differs across farming enterprises and food companies, and the costs to food producers, mainly those not fully benefiting from these efforts, remain high because of all the necessary mitigation measures.
Overall, we are probably off the period of elevated consumer food inflation. The next couple of months, and going into 2024, will be characterised by the deceleration of consumer food inflation.
The key drivers of the expected moderation will be meat, grain-related products, vegetable oils and fruits, which comprise roughly two-thirds of the consumer inflation food price basket. The base effects also support a view of a softening pace to levels about 8% to 9% year on year in 2023 (from 9.5% in 2022).
Wandile Sihlobo is the chief economist at the Agricultural Business Chamber of South Africa and the author of Finding Common Ground: Land, Equity and Agriculture.