Food price inflation could ease in second quarter
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THE expected large domestic harvest, the expected softening in global grain prices and recent developments in the meat industry could lead to the easing of consumer food price inflation in South Africa from the second quarter of this year, the Agricultural Business Chamber(Agbiz) said yesterday.
Agbiz chief economist Wandile Sihlobo said the organisation was of the view that consumer food price inflation would likely average about 5.5 percent in the second quarter.
“Let’s recall that South Africa is typically a net exporter of maize and is, therefore, well integrated into global markets. Our rough calculations, using high-frequency data (daily data with more than 300 observations), shows that the correlation between domestic and international maize prices remains positive, about 60 percent for white maize, which is mainly traded into the African region, and 85 percent for yellow maize, which is traded into the global market.
“This implies that when global maize markets increase, domestic maize prices rise in tandem. Importantly, for wheat, rice and soya bean and other vegetable oils, where South Africa is typically a net importer, the correlation between domestic and global prices is stronger,” said Sihlobo.
Agbiz said against this backdrop, last week’s report that the UN Food and Agriculture Organisation’s Global Food Index averaged 127.1 points last month – which was the biggest month-on-month gain since October 2010 and about 40 percent higher year-on-year basis – would worry the local food industry.
The sharp increase was underpinned by a surge in prices for vegetable oils, sugar and cereals, along with firmer prices for meat and dairy products, all of which South Africa was generally exposed to in the global market.
He said the downgrade of production prospects in Brazil, dryness in parts of the US, expected lower palm oil output in Southeast Asia, and the rising Chinese demand for grains, meat, dairy and oilseeds had been the primary drivers of prices in the past few months.
The chamber said, however, that the data released at the end of May by the International Grains Council (IGC) suggested a change in the outlook for the supply of grains in the 2021/22 production season.
The IGC forecast 2021/22 global wheat production at a record 790 million tons, up 2 percent year-on-year. Global rice supplies and stocks were also at comfortable levels, well above those of the 2020/21 production season.
Agbiz said it saw a similar pattern in the prospects for global soya bean production, with the 2021/11 harvest estimated at 383 million tons, up 6 percent year-on-year.
Meanwhile, stocks were estimated at 51 million tons, up 10 percent year-on-year.
Agbiz said these production forecasts suggested that from June global crop prices could soften slightly from those of the recent months and could also influence the outlook for South African consumer food price inflation.
“However, the price developments in the case of soya beans will be influenced more by Chinese buying decisions and the broader vegetable oils market developments.The critical point is that global crop conditions are in a better state than in the past few months, which should be reflected in prices in the coming months,” Sihlobo said.