South African consumers can breathe a sigh of relief as experts foresee food prices continuing to moderate in the weeks ahead despite some upside risks.
Consumer price index data showed that consumer food inflation moderated to 10% in July this year, down from 11.% the previous month.
Agricultural Business Chamber (Agbiz) chief economist Wandile Sihlobo said while there were renewed risks in global agriculture - such as India's decision to ban specific categories of rice exports and the Black Sea Grain Deal Initiative that facilitated grains and oilseeds exports from Ukraine terminated - they were still optimistic that South Africa's consumer food inflation would continue to slow during this second half of this year.
The products that could underpin the slowing food inflation trend would likely remain similar to those in the past few months, notably, red meat prices, which had softened at the farm level, should continue on this trend at the retail level in the coming months. Fruit prices should also remain affordable because of improved domestic supplies, he said.
“However, there are some risks in some food product categories. For example, the recent decline in ‘oils and fats’ products in the inflation basket mirrored the softening price trend we saw in the global environment a few months ago. But this trend may change slightly in the coming months as we see the changes already in the global environment,” he said.
In July the FAO's vegetable oil price index was at 130 points, up 12% from June, significantly, marking the first increase after seven months of consecutive declines.
“This increase was due to Black Sea concerns, mainly on sunflower oils, and the subdued production conditions on palm oil, a product South Africa imports in large volume. We will keep an eye on the global vegetable oil prices as their price trends, over time, may reflect in South Africa, but not in equal proportion as the global price changes,“ he said.
Regarding the “bread and cereals” product prices, the Black Sea Grain Deal challenges and India's rice exports ban remained an upside price risk.
Agbiz said there was roughly a lag between three to five months between the price changes at farm and retail levels. “Hence, we expect the prices of grain-related products in the inflation basket to maintain a softening path regardless of the recent disruption in grain prices.”
Thabile Nkunjana, the senior economist at the Trade Research Unit of the Markets and Economic Research Division within the National Agricultural Marketing Council (Namc), said bread and cereals, as well as meat, were the main products prices had slowed slightly.
“However, dairy, sugars, and vegetables, particularly onions, remain much higher due to production concerns from late 2022 to the first few months of 2023,” Nkunjana said.
Namc said locally, the marketing season for several grains in 2023/24 started well, and as a result, the local market had an abundance of grain supplies. Local grain output forecasts depicted a positive picture, which was aligning well with local pricing, particularly for maize and soybeans, at least for consumers.
In terms of production projections, the same pattern could be seen globally. Soybean, maize, and wheat production were expected to increase by 10%, 6% and 1%, respectively, in 2023/24.
“This was despite recent drought warnings from key grain-producing regions such as the Americas and the European Union. Furthermore, with the grain deal not being extended, global anxieties abated, but commodity prices did not react to the levels many expected.”
The International Grain Council's global wheat, maize, barley, and soybean indexes were 18%, 26%, 26%, and 12% lower as of August 21, it said.
However, Nkunjana said food price concerns remained because it was still early in the season, and a lot could happen depending on a variety of factors.
“For example, the threat to rice supply persists, and rice is the third most eaten basic food in South Africa after maize and wheat, and India's export embargo remains in place, but we are monitoring the situation," Nkunjana said.
In the short term, abundant grain supply and lower commodity prices should help consumers, Nkunjana said.
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