Consumer food price inflation could moderate in the second half of the year as all data points to another favourable agricultural season in 2022/23, Agricultural Business Chamber (Agbiz) chief economist Wandile Sihlobo said on Monday.
He said higher tractor sales, attractive prices and favourable weather forecasts suggested that South Africa could have another favourable agricultural season in 2022/23, which could then see the consumer food price inflation moderating in the second half of the year from the higher levels of 9 percent year-on-year in June.
Agbiz believed the food price inflation could remain contained at relatively lower levels in 2023.
“The global price movements and fuel prices remain the key upside risks. Still, we foresee a better outlook, provided the conditions we spelt out hold,” Sihlobo said.
Agbiz said as the harvest for the 2021/22 summer crop season drew to a close, the focus was shifting towards the 2022/23 production season, which would commence in October.
While Agbiz’s preliminary insights suggested that South Africa could have another good season, a risk factor was that the extreme rains and heat observed in the northern hemisphere summer season could be experienced locally.
Sihlobo also warned that challenges remained such as the interruption of citrus exports in the EU, the temporary closure of wool exports to China, foot-and-mouth disease in the cattle industry, relatively higher input costs and rising interest rates.
South Africa’s tractor sales for the first half of this year were up 18 percent year on year at 4 133 units. At the same time, combine harvester sales amounted to 213 units, also up by 37 percent.
Sihlobo said the positive sentiment about the upcoming 2022/23 production season was an essential factor that might have encouraged farmers to increase investments in movable assets such as tractors.
The improved farmers’ finances on the back of the solid production performance of the sector in the past two years, when commodity prices, specifically for grains and oilseeds, were elevated, were said to be the primary driver of the sales in the first half of the year.
The generally positive sentiment in the sector was also reflected on the Agbiz/IDC Agribusiness Confidence Index, a measure of the sentiment among agribusinesses and major farming entities, which was at 60 points in the second quarter.
Agbiz said the weather outlook for the 2022/23 production season showed encouraging signs.
Sihlobo said while they expect South Africa’s maize, soya bean and sunflower seed prices to soften in the second half of the year, these were still attractive levels which should incentivise farmers to maintain sizeable plantings in the 2022/23 season.
The preliminary estimates from the US Department of Agriculture (USDA) forecast South Africa’s 2022/23 maize area plantings at 2.6 million hectares, which was well above the 10-year average of 2.5 million hectares.
Sihlobo said it was still early to formulate a firm view, and they awaited more data, especially concerning the weather.
“South Africa will need favourable rains, not excessive, primarily between October 2022 and February 2023 for this upcoming season, not only for field crops but also for livestock and horticulture. For now, the available indications are encouraging,” he said.
BUSINESS REPORT