Although there are lag effects between the decline in agricultural commodity prices and retail food prices, the benefits of the uptick in agricultural production are already reflected in food prices. South Africa’s annual food inflation and beverages inflation fell to 8,7% year-on-year in March 2017, which is the lowest level in 14 months.
The general decline in food inflation is largely on the back of a broad recovery in agricultural production. Maize production is estimated at 14,3 million tons, which is the second-biggest crop on record after 1980/81. This uptick in production is underpinning a bearish trend in agricultural commodity prices, which is expected to prevail for the better part of the year.
Data from Statistics South Africa shows that food and non-alcoholic beverages inflation fell to 8,7% year-on-year (y/y) in March 2017 from 9,9% in February 2017. With that said, the picture of the food inflation basket was mixed. While the majority of products decelerated, non-alcoholic beverages, sugar, sweets and desserts accelerated.
The uptick in sugar, sweets and desserts is partly on the back of the expected decline in sugar production this year. BMI Research forecasts a 1% decline in South Africa’s 2017 sugar production to 1,66 million tons. This would be a second consecutive annual decline, following a 23% decrease in 2016 due to the drought.
Meat inflation remained unchanged from the previous month, at 9,9% y/y, as the slaughtering activity slowed down, with farmers continuing to restock their herds, following a drought season. In February 2017, farmers slaughtered 192 186 head of cattle, which is a 17% annual decline.
While the overall food inflation is expected to decelerate further over the coming months on the back of large supplies, sugar, milk and meat inflation could remain at relatively higher levels. As the winter season approaches, milk production could decline, in line with seasonal trends. – Wandile Sihlobo, Agbiz