Food prices are expected to remain high in 2023. However, consumers should see a decline in the coming months, with a more favorable long-term outlook for food prices, says the Bureau of Economic Research (BER).
The group of researchers said food price dynamics surprised with an increase in February, with the shedding of the tax heavily contributing to a rise in feed costs, fuel, fertilizer and more — all operational costs passed on to consumers.
The persistence of the tax shedding will keep food prices for consumers high, the BER said.
The group added that nearly 80% of non-sustainable retail (food and beverage) respondents who responded to the latest 2023 Q1 Retail Survey expect sales prices to increase more rapidly in 2023 Q2 compared to a year ago.
“This is more or less comparable to the percentage of respondents who reported an acceleration in sales prices in the first quarter of 2023,” the BER said.
“For the coming months, the outlook for food prices is more favourable.”
The BER said there are strong base effects that should support an easing in the pace of food price increases in the last six months of 2023.
Such “base effects,” according to the group, include:
The annual rate increase for the food CPI component accelerated to about 12% in the second half of 2022 from 7% in the first half. Sharp declines in South Africa’s future maize and wheat prices from peaks in 2022, with wheat declining 9% year-on-year and maize 6%.
“Should futures prices stabilize at this level, or rather fall further, it would ease some of the input costs for certain categories of food producers. If the lower oil price continues, that will be another positive for food bills later in the year.”
“Despite these more favorable developments, we now see consumer food prices averaging around 9.5% in 2023,” the BER added.
Food inflation
Recent CPI data showed that food prices hit a 14-year high in February at 13.6%. The position in February is the highest since April 2009, when it was also 13.6%.
Annual inflation for bread and breakfast cereals was 20.5%, slightly down from 21.8% in January. Cornmeal, an important staple, remains subject to high inflation rates. The price index increased by 2.2% between January and February, bringing the annual rate to 34.7%.
Meat inflation continued to accelerate, reaching 11.4% in February from 11.2% in January. For meat, this is the highest annual increase since February 2018 (also 11.4%).
Annual inflation for the oils and fats category slowed for the sixth consecutive month to 16.7%, the lowest level since April 2021 (also 16.7%).
According to the Bureau for Food and Agricultural Policy (BFAP), the higher food prices in South Africa are caused by the following factors:
The weaker edge; Ongoing and escalating tax divestment; Warm and dry conditions in key production areas (e.g. South America); Geopolitical unrest (war in Ukraine); Supply chain disruptions; and animal diseases.
Food prices – particularly those of fresh produce – across the country are currently under investigation by the Competition Commission.
In recent years, there has been concern about farmer concentration and participation and the overall volatility of fresh produce prices.
The research assesses whether features in the fresh produce value chain hinder, limit or distort competition in the marketplace, including the final price of food on the shelf at the store.
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