File image: Reuters

The spectre of food price increases looms ever larger, with Tiger Brands declaring it will soon be compelled to pass on higher costs to consumers.

The food producer, which owns popular brands such as Ace mealie meal, said on Friday that while it would continuously look for ways to reduce and manage costs to the consumer, it would not be able to absorb all the increased costs of white maize. Some were likely to be passed on to the consumer.

Corporate affairs group executive Alex Mathole said the company was not sure how long it would hold out before it passed on the costs. “Should prices increase, our customers will then determine their appropriate retail price to consumers,” Mathole said.

Drought in some parts of the country has led to low harvests and stock shortages.

The latest crop data showed that the country had white maize stock cover of 23 days of demand at the end of November, down from 37 days at the end of June. The stock of yellow maize, which is mainly used for animal feed, had fallen to 30 days from 42 days.

Price increases of wheat products such as bread and cereals are also likely, as South African wheat futures have risen to the highest level in more than a year on low supplies and the weakening rand. It fell to a five-year low against the dollar last week, but on Friday it strengthened 14.22c to be bid at R10.6696 a dollar at 5pm.

South Africa probably produced 1.75 million tons of wheat for the 2013 season, compared with 1.87 million tons the previous year. The contract delivery for wheat in March gained 0.6 percent to R3 737 a ton by the close on the SA Futures Exchange on Friday, the highest for the most-active traded contract since December 2012.

Thys Grobbelaar, an analyst at agribusiness Senwes, said last week that because of low carry-over stock, the maize market was nervous. This had resulted in millers stocking up on more maize at higher prices.

He estimated that maize prices increased by between 47 percent and 50 percent in the past year. White maize prices have risen from R2 050 a ton in January last year to a record R2 999 a ton on the SA Futures Exchange on Friday.

Pioneer Foods, which produces mealie meal brands such as White Star Super, said it had noted the inflationary trend in its results presentation in November and expected price volatility to continue while the new white maize crop settled.

Its Sasko division, of which maize products are a part, would focus on maintaining its market share by careful management of price points and input costs to support margins.

Daniel Isaacs, an analyst at 36One Asset Management, said producers had limited space to pass on costs. It was going to be a difficult year as the consumer was strained.

“It is unlikely that producers will be able to pass on the full cost of maize increases.” It was easier to pass on costs of more value-added products such as bread than mealie meal, which required less processing. – Additional reporting by Bloomberg.