Although still early to celebrate, the latest developments out of Eskom with some plants achieving 70% energy availability factor created optimism of a near end to load shedding.
This achievement should reduce pressure on agricultural producers that have a higher electricity need for their operations, according to Paul Makube, Senior Agricultural Economist, FNB Commercial.
He said this after Statistic South Africa announced the latest update on the country’s headline inflation accelerated to 7% y/y in February 2023 underpinned food and non-alcoholic beverages, housing and utilities, transport, and miscellaneous goods and services on Wednesday. In the food category, prices jumped to the record high of 14% y/y since March 2009.
However, the monthly food CPI slowed from 2% m/m in January to 0.9% m/m in February.
Makube said that the unrelenting cost pressures emanating from elevated feed costs and load shedding were the biggest drivers of higher meat inflation as producers especially of intensive production systems were left with no choice but to recover costs.
He said that meat, with a higher weight of 35% in the food basket saw an increase of 11.4% y/y in February this year but decelerated to 0.2% m/m after jumping 2.6% m/m in January.
Makube said that in the food basket, the bread and cereals category posted the highest increase of 20.5% y/y in February 2023 although slightly slower than the 21.8% pace for January.
“This again reflects price gains of raw commodities in 2022 that manufacturers are still carrying, and further exacerbated by the cost pressures emanating from load shedding. Moreover, this category’s weight is significant in the food basket at 21%. Nonetheless, we have seen some moderation in grain prices relative to 2022 levels and hopefully this will be reflected in the next few months given the lag in the pass-through to the consumer prices.”
The senior agricultural economist said other sizeable increases included oils and fats, vegetables, and other foods with 16.7%, 15.7%, and 15.0% y/y respectively.
He said gains in oils and fats reflected the elevated trend in domestic oilseed crops prices relative to last year.
“However, monthly prices on both the domestic and international markets trended on the downside in the February which has the potential to limit further upside in consumer prices in the months ahead. Furthermore, global food inflation remains on the downside as per the United Nations Food and Agriculture Organization’s February update that showed a fourth consecutive decrease to -8.1% y/y. Fortunately, the domestic summer crop season is expected to end on a high note with a good harvest given the excellent seasonal conditions which bodes well for food inflation in the months ahead.”
Thabile Nkunjana an Agricultural Economist for Agro-Food Chains in the Markets and Economic Research Division of the National Agricultural Marketing Council (NAMC) said while food and non-alcoholic beverages were the main contributors to the observed increase in the overall CPI in February, it was also crucial to remember that this occurs not just in South Africa but all throughout the world. “For instance, food inflation in February 2023 increased by 5.9% in India, 9.3% in Russia, 9.8% in Brazil, 11.6% in Botswana, 14.0% in Zambia, and 18.0% in the United Kingdom (UK),” Nkunjana said.
He said that for South Africa, the main drivers to this increase were bread and cereals increasing by 20.5%, followed by oils and fats (16.7%), processed foods (16.1%), vegetables (15.7%), animal products like milk and cheese (12.0%) and unprocessed foods (11.9%). “Even though grain products such as bread and cereals (20.5%) contributed to the overall increase in food inflation, they declined in February, retracting by 1.3% (m/m) from the 21.8% recorded in January. This can be attributed to the decline in wheat prices at the global market, with the wheat index by the International Grain Council (IGC) recorded 26% down year-on-year as of the 20th March 2023.”
Nkunjana said the “grain export deal” which was recently extended was in part to blame for the decline in wheat prices together with available stocks from Australia and Brazil. He said that as a result, local prices for wheat products were likely to continue to exhibit this trend ceteris paribus (with other conditions remaining the same; other things being equal).
He however said that the uncertainty around the grain deal remained. “The grain deal was initiated by the United Nations and Turkey in July 2022 and cereal prices have been declining since then.
The overall contribution for vegetable prices climbed again, increasing by 15.7% in February 2023 when compared to 14.3% in January 2023. This was led by onions, cabbage and potatoes which can be attributed among other things, the ongoing supply issues emanating from weather conditions,” Nkunjana said.
“In contrast, fruit prices slightly declined as additional supplies entered the market, particularly for apples and pears. Hail, however, has apparently had a negative impact on production in the Western Cape province, a major supplier of these fruits. This could slightly lower apple and pear production and quality in 2023 should these predictions come through. But these are still early predictions and new cultivars with better yields were being planted in recent years. Meat, milk, and cheese resulted in an increase of 12.3% in animal products in February 2023. With the current load shedding concerns and the high pricing of grains and oilseeds, this is not surprising for these products. Yet as conditions locally and in the global market continue to improve, food inflation should slow down in the upcoming months,” Nkunjana said.
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