SA food stuff charges facial area growing local headwinds

The FAO World Meals Value Index (FFPI), which actions the month-to-month alter in the international rates of a basket of foods commodities, averaged 129.8 details in February 2023, down .6% from January and continuing its downward pattern for an eleventh consecutive thirty day period. With the most up-to-date decline, the index has fallen 18.7% from its peak in March 2022.

The marginal decrease of the FFPI in February reflected important drops in the cost indices of vegetable oils and dairy, with each other with fractionally reduced cereals and meat indices, far more than offsetting a steep increase in the sugar cost index.

Figure 1: FAO’s World wide Foods Price Index

In an encouraging enhancement for world-wide foodstuff inflation, the Initiative on the Safe Transportation of Grain and Foodstuffs from Ukrainian ports, also recognised as the Black Sea Grain Initiative, has been prolonged for an additional 120 days and will be reviewed all over again right after this period of time. This initiative started off in July 2022 and is an arrangement among Russia and Ukraine created with Türkiye and the United Nations (UN) to permit grain movement from Ukraine to entire world markets devoid of Ukraine currently being attacked by the Russian armed forces. Considering the fact that the offer was initial signed into fruition, Ukraine has exported about 25 million tonnes of grains and vegetable oils – a single of the most important drivers for the decline in world wide foodstuff price ranges above the earlier 11 months.

All round, Ukraine continues to be a important player in the world wheat industry, even however its output has declined considerably thanks to the war. Inspite of the sharp decrease in Ukraine’s wheat exports, the most up-to-date International Grains Council (ICG) forecast for 2022/2023 international wheat exports is at 199 million tonnes – up 1% from the preceding time. In addition, Australia, Canada, the EU, Kazakhstan and Russia are anticipated to enhance the accessible provides for the globe industry.

This enhancement in export provides implies international wheat prices could continue to average around the medium expression. Nonetheless, the Black Sea geopolitical tone and war remain important hazards to the world-wide grain and vegetable oil market for the foreseeable long run. Extending the grain offer is a welcome growth, but the time period is reasonably shorter. A longer time frame is considerably preferable for industry gamers to clear uncertainty surrounding shipments for additional prolonged periods. Nevertheless, the offer extension rewards all wheat- and vegetable-importing international locations (notably South Africa) as international wheat rates continue on to soften.

Regionally, headline inflation rose somewhat by .1-pp to 7.% yr on year in February, larger than the consensus forecast of a 6.9% year on year raise. Notably, core CPI inflation jumped much more markedly by .3-pp to 5.2% 12 months on 12 months. On the other hand, the rise in main inflation was mainly pushed by health and fitness insurance policies expenses, which have started to change greater after two many years of unusually reduced boosts. Hence, we do not see the rise in main CPI as reflective of a wide-based underlying price force that will be sustained.

Whilst upside threats keep on being, we anticipate this main CPI print of 5.2% to be the peak, and we forecast that headline CPI inflation will resume its wide easing pattern from March 2023. However, the critical threat variable for this outlook stays food stuff value inflation, which has enhanced continually for most of the previous yr, reaching 13.6% 12 months on yr in February. The dominant contributors were being meat and fish (+3.9% 12 months on yr), bread and cereals (+3.8% 12 months on year), dairy and eggs (+1.8% yr on calendar year), and veggies (+1.2% yr on year).

Determine 2: SA inflation, January 2019 to date (yr on 12 months, % improve)

When compared to other important marketplaces, SA’s February food stuff inflation was reduced than in the EU but increased than in Kenya, Zambia, Brazil, the US and China. In comparison to January 2023, decreasing food inflation costs have been observed for China, the US and Brazil, even though rising foodstuff inflation prices have been professional in Kenya, the EU and SA.

Figure 3: Intercontinental food inflation comparison

A lot of variables that have pushed area foods inflation over the previous calendar year are not exceptional to SA. These contain superior agricultural commodity charges globally, as perfectly as elevated vitality expenses, which impact the selling prices of inputs these types of as fuel fertiliser. While a quantity of these world aspects are easing, as evidenced in the continued decline in the FAO’s Food items Cost Index, the depreciation in SA’s exchange charge has offset significantly of the world wide decline. At the similar time, persistently substantial amounts of load shedding added sizeable costs across the agriculture and food stuff benefit chain. Notably, the sharp trade charge depreciation has prevented considerably of the noticed decrease in entire world price ranges from transferring to SA.

Looking in advance, obviously, any substantial appreciation in the coming months would have the reverse outcome – easing domestic price ranges for agricultural commodities. Having said that, this result could lessen if load shedding is managed at decreased stages. Regrettably, the consensus is that load shedding will very likely remain at relatively high ranges for the foreseeable long run, which will, in flip, be a critical element in trying to keep regional meals selling prices increased for longer.

For March 2023, the high base results of March 2022 are probably to bring about meals inflation to average rather. However, an increase in administered selling prices, these as energy, thanks to be applied in April, could even more insert cost pressures that, in turn, are possible to continue to keep food selling prices elevated in excess of the coming months.

Casey Delport is an financial commitment analyst – Set Revenue at Anchor Cash.