He also provides more information about the latest developments in the agricultural sector. 

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In this week’s insert, Siblobo sheds light on South Africa’s food price inflation.

“While the recent data continue to show that South Africa’s consumer food price inflation remains elevated, the second half of the year could show moderation. In June 2021, South Africa’s consumer food price inflation accelerated to 7 % year-on-year (y/y) from 6,8% y/y in the previous month.

“This was the fastest pace since June 2021. The underpinning drivers of this monthly increase were primarily the oils and fats; meat; and milk, eggs, and cheese. Bread and cereals, which are amongst the products with higher weighting and were one of the drivers of the uptick in inflation in the past few months, remained broadly unchanged from May 2021,” says Sihlobo.

He explains that the general increase in consumer food price inflation in the past few months has not been a unique occurrence to South Africa but a global phenomenon.

“In fact, the price increase of various products such as grains, as well as oils and fats in South Africa, were driven by global developments. The global market price increases were, in turn, supported by a range of factors such as growing demand in China, lower production of palm oil in Asia, lower global grains stocks, dryness in South America and unfavourable weather conditions in parts of Europe and North America at the start of the 2021/22 production season. We have, however, now seen substantial change in these factors and the global prices are starting to reflect it.

“For example, the production conditions have improved notably in Europe and North America. As such, both the International Grains Council and the United States Department of Agriculture forecast an improvement in the 2021/22 global grains and oilseeds production. Both institutions forecast the 2021/22 maize production at 1,2 billion tonnes, 7% higher than the last season.

“The optimism is on the back of an expected large crop in the US, Brazil, Argentina, Ukraine, China, EU, and Russia. The 2021/22 global wheat production is estimated at 792 million tonnes, 2% higher than the 2020/21 season. This is on the back of an expected large crop in the EU, the US, Ukraine, Argentina, China, India, and the UK. The global rice production is forecast at 506 million tonnes, up by 0,2% from the 2020/21 season because of expanding area plantings in Asia. The soybeans 2021/22 global harvest estimate is at 385 million tonnes, 6% higher than the previous season. This is supported by an expected large harvest in the US, Brazil, Argentina, India, Paraguay, Russia, Ukraine, and Uruguay,” explains Sihlobo.

He adds that this improvement in the global oilseed and grains production prospects is evident in the Food and Agriculture Organisation (FAO) Global Food Price Index which fell by 3% in June this year from the previous month to 125 points. This was the first drop in 12 consecutive monthly increases.

“These production forecasts suggest that global agricultural commodity prices from the second half of the year could continue softening, slightly, from the recent months' levels. If such transpires, the South African grain prices could follow a similar path, which bodes well for consumer food price inflation.

“The only major upside risk on grain prices are the lower grains stocks, and progressively also the growing consumption from the renewable energy industry. With that said, the data so far points to a positive direction for a consumer than much of the first half of the year.

“The oils and fats in South Africa’s food basket, whose price direction is largely influenced by global vegetable oil price trends could also soften in the coming months. Global prices are already on a downward path.

“Meat, which also underpinned the increase in food price inflation in June 2021, could likely soften in the coming months. The source of softening in prices could be the biosecurity challenges, such as the foot-and-mouth disease in parts of KwaZulu-Natal and Limpopo and the subsequent ban of South Africa’s beef in various export markets, along with the African swine fever and avian influenza. While these diseases are damaging and costly for farmers, they tend to lead to a decline in domestic meat prices due to the restricted exports.

“The recent unrests in KwaZulu-Natal are unlikely to be major upside risks to domestic food price inflation as the supply chains were quickly restored. There is anecdotal evidence that at the height of the unrests, prices of basic foodstuffs such as bread hiked notably in informal markets.

“But there was a correction as soon as the bakers reopened and the bread supply improved. If there is one upside risk to keep an eye on in the food price inflation dynamics, it is the rising fuel prices. A large share of South African products is transported by road,” concludes Sihlobo.     

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