The evolution of food price inflation in South Africa in July 2024 offers an encouraging outlook. Recent figures show a significant slowdown, with food price inflation at 3.9%, down from 4.1% in the previous month. This trend is the lowest since January 2020 and is supported by continued moderation in price inflation for most food items in the baskets, with the exception of bread and cereals and meat.
The moderation in food price inflation in South Africa, which represents the rate of increase in food prices, has been observed since the beginning of the year. However, the increase in prices of bread, cereals and meat products in recent months raised concerns of a slight increase in food inflation.
Fortunately, these increases have been offset by continued moderation in other products. The decline in price inflation for commodities such as oils and fats, milk, eggs and cheese, fruits and vegetables is the result of increased supplies, and to some extent the strengthening of the rand against the dollar is helping in the case of imported vegetable oils.
However, bread and cereal prices should be closely monitored as they are likely to increase in the coming months. A major challenge is the summer drought that led to a 19% year-on-year decline in maize production to 13.34 million tonnes. White maize production is estimated at 6.35 million tonnes (down 26% year-on-year) and yellow maize at 6.99 million tonnes (down 12% year-on-year). Given the magnitude of the decline in the white maize crop and the expected strong demand from Southern Africa, I expect white maize prices to remain relatively high for some time, maintaining the rise in bread and cereal products in the food basket.
Despite this, I do not expect a significant increase in prices, as the International Grains Council forecasts indicate a potential large global harvest. For example, global wheat and rice production for 2024-25 are estimated at 799 million tonnes (up 0.6% year-on-year) and 528 million tonnes (up 1.2% year-on-year), respectively.
South Africa imports almost half of its annual wheat consumption, or about 1.5 million tonnes per year. In addition, the country imports about one million tonnes of rice each year. Favorable production conditions for these cereals in the 2024-2025 season and a possible subsequent drop in prices would be welcome developments for an importing country like ours.. In addition, the relative strength of the national currency will also help reduce the costs of imported food, which is an advantage for these cereals and imported vegetable oils such as palm oil.
Beyond these cereals, meat price increases could remain moderate in the coming months. Weak consumer demand, particularly for red meat, could limit the increase in meat prices.
Given the larger weight of bread, cereals and meat in the food basket, an increase in their prices, if sustained, could reverse the trend of overall food inflation from moderation to a slight increase in the coming months. However, this increase is expected to remain at relatively comfortable levels, without the sharp increases we have seen in the past year.
Wandile Sihlobo, Chief Economist of the South African Chamber of Agricultural Affairs and Senior Research Fellow at the Department of Agricultural Economics at Stellenbosch University, provides insightful perspectives on food price developments and their implications for the national economy. His latest book, A Country of Two Agricultures, provides insights into the complexities and challenges of South Africa’s agricultural sector.