Factors influencing Food Prices over this festive season:
I think I can speak for the majority of our country when I say there is a rising concern on food prices over the festive season.
South African consumers will cut back on travel and socialising in favour of food purchases over the festive season as tough economic conditions force people to be more pragmatic in their spending habits. Consumers are showing signs of conservatism as general day-to-day living expenses continued to rise while consumers try to stretch their budgets as far as possible.
The weakening Rand and the devastating impact of the El Nino might put a damper on the South African consumer over the festive season.
In an Article in BizNews by Dane McDonald he said; South Africans should brace themselves for a double blow on food prices from the countrywide drought and continued rand weakness.
“While South Africa was still recovering from an R12bn loss in maize production from last year, it is in the grip of a drought which could see it become a net importer of the crop for the first time in seven years”, Grain SA CEO Jannie de Villiers told Fin24 on Wednesday.
McDonald said that this could translate into a significant increase in maize and ultimately food prices. He said the February 2015 drought caused a 70% increase in the price of white maize which translated into a 14% increase in mealie meal prices.
“There is already consumer resistance in the consumption volume … it is going very badly with poor people in the country,” he said.
Corn prices have surged by more than 50 percent this year in South Africa, while dry weather caused by the El Nino weather pattern has disrupted planting. A price shock may hurt consumers already facing job cuts and higher interest rates, further dragging down an economy that narrowly missed falling into recession this year.
Food’s 14 percent weighting in the consumer price index is the largest after transport and rising costs have the potential to drive inflation higher. The Reserve Bank has already raised its benchmark interest rate four times since the beginning of last year to 6.25 percent as it forecasts inflation will breach the 3 percent to 6 percent target band next year.
The last time food inflation was above 10 percent was between October 2011 and January 2012, when the worst drought in a quarter of a century ravaged crops in the U.S., the largest producer of corn. At that time, the central bank was cutting interest rates even though inflation was above 6 percent and the rand traded at an average of 8.08 to the dollar.
But it’s not all doom and gloom, according to Savious Kwinika’s article in allAfrica
The persistent dry spells have come as a blessing in disguise for red meat lovers in South Africa.
This follows reports that farmers are reducing their livestock as a result of deteriorating pastures and the current high feed-grain prices.
Consequently, the price of red meat at a retail level is expected to fall by 8 percent to 15 percent between December and January next year, as more animals are being slaughtered by farmers, leading to an oversupply of meat in the short-term.
On average, beef and sheep prices at farm level are already marginally down by 1 percent and 2 percent respectively, with further declines expected as grazing conditions deteriorate due to a lack of rain.
Paul Makube, Senior Agricultural Economist at First National Bank, said consumers who were already struggling to provide for basic needs caused by rising food and electricity costs, should thus expect temporary relief during the festive season.
He said the low price of meat would be further sustained in January next year due to a lower demand from cash-strapped consumers that would be cutting back on spending following the holidays and facing new expenditure on school requirements.
“Despite the temporary relief on meat prices, consumers should not be misled. The drought conditions affecting the agricultural industry will have negative consequences on food prices in the longer term,” he highlighted.
Makube cautions that meat prices were expected to significantly increase from March and April next year as farmers start re-building their herds.
“Herd-building takes time – this will inevitably lead to a shortage in supply in the long term, because of a limited number of animals entering the food supply chain.”
He said therefore, the increasing price of meat at farm level coupled with a contraction in meat supply would ultimately result in retailers passing on costs to the consumers.
In contrast, consumers that prefer pork and poultry can expect to pay more in December as prices are expected to trend slightly upwards due to the increased demand ahead of the festive season.
“As consumers prepare for the holiday season, they can at least look forward to enjoying a traditional braai with friends and family, without worrying too much about the cost,” said Makube.
We as South Africans can definitely embrace the silver lining and enjoy red meat over the Christmas period. I just want to urge people to make sure each and everyone is doing their bit and use water sparingly as the result of water shortages directly affect everyone.