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The current climate has greatly contributed to soft and hard price increases in the agricultural industry. Data released by Statistics South Africa showed that our food price inflation has decelerated to 6,3% year-on-year in April 2022 from the previous month’s 6,6% year-on-year. This is due to relatively softer price increases in meat, milk, eggs and cheese, and vegetables.
The data is within our expectations and the price variation will likely persist in the coming months. This means that fruit, vegetables, milk, eggs and cheese, and meat to a lesser extent could see soft price increases in the coming months. There are notable increases in grain-related products and oils and fats which mirrors the price movements we are currently observing in the agricultural markets.
The war in Ukraine disrupted the global grains market and since the agricultural commodity prices have increased significantly. The FAO’s Global Food Price Index averaged 158 points in April which is up 30% year-on-year, coming from a record high seen in March. The recent ban on palm oils by Indonesia and the ban on wheat exports by India as well as the expected lower wheat harvest in the 2022/23 production season has added renewed upside pressures to agricultural commodity prices. This will likely feature in the FAO’s Global Food Price Index update that will be released on 3 June 2022. As we are interlinked with the global agricultural markets, South Africa has also seen increased agricultural commodity prices. This results in a potential uptick in cereals and oil and fat products prices in the consumer food price inflation basket. Another upside risk to the domestic market is the rise in fuel prices.
South Africa has a sizeable harvest of fruits and vegetables and the disruption in the fruit exports within the Black Sea region could also add downward pressure on domestic prices, which means that we generally hold a favourable view of these product price directions for the coming months. The price trend for meat remains uncertain. The recent outbreaks of foot-and-mouth disease have led to the temporary closure of some key export markets for the red meat industry which adds downward pressure on prices. There are also fears of a potential increase in poultry product prices, which could lessen the benefit of softer red meat prices.
Generally various factors in the food market push in opposing directions in the short term. However, we believe that South Africa’s consumer food price inflation could average 6,0% year-on-year in 2022 from 6,5% in 2021. The base effects, along with meat, fruits and vegetables, will likely provide a constructive price inflation ahead.
This information is intended for general information purposes only and does not constitute legal advice.
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