Food prices fall internationally but increase in SA

Thursday, 20 April 2023

by Joanie Bergh

World-wide decreases in food prices were recorded over the last year, such as decreased prices of cereals, vegetable oils and dairy. In South Africa, however, food prices continued to increase.

The benchmark index of international food commodity prices fell for the 12th consecutive month in March.

The Food and Agriculture Organization (FAO) of the United Nations reported that these declines were driven by lower prices for grain and vegetable oils.

The FAO Food Price Index, which records the monthly changes in the international prices of common food commodities, achieved an average of 126,9 points in March. That is 2,1% less than the previous month and 20,5% less than the peak level in March 2022. According to experts, the decrease in international food prices can be attributed to sufficient supplies, subdued import demand and the extension of the Black Sea Grain Initiative.

SA paints a different picture

According to Paul Makube, a senior agriculture economist at FNB, South Africa’s food inflation remained high because local agriculture commodity prices are still trending towards higher levels despite lower prices on the global market.

“A combination of a weaker exchange rate, higher prices for raw materials and higher energy costs that sprout from loadshedding bolstered higher local prices. Hence the disconnect from South Africa’s international counterparts,” says Riaan.

“Global food inflation accelerated in the first half of 2022 and was bolstered by the Ukraine-Russia war, which had a big impact on global trade and logistical bottlenecks. The FAO’s statistics indicate, however, that the food inflation decreased between the second half of 2022 and the start of 2023.”

Falling prices

According to the FAO, the global Cereal Price Index declined by 5,6% since February and the international wheat prices by 7,1%.

A strong output in Australia, improved crop conditions in the European Union, higher supply levels in Russia and ongoing export by Ukraine’s Black Sea ports can all be used to explain the decline.

Global maize prices fell by 4,6%, partly due to expectations for a record harvest in Brazil, while the price of rice fell by 3,2% amidst nearing harvests in large export countries like India, Vietnam and Thailand.

The Vegetable Oil Price Index was an average of 3% lower than the previous month and 47,7% less than its levels in March 2022 due to ample world supplies and subdued global import demand that put pressure on the price of soya, grapeseed and sunflower oil. It neutralised palm oil prices, which rose due to low output levels in South East Asia after flooding and temporary export limitations from Indonesia.

The Dairy Price Index declined by 0,8% in March. Butter prices rose as a result of a solid import demand while the cheese price declined due to slower purchases by the majority of big importers in Asia and the increased availability from leading exporters. 

In contrast to this, the Sugar Price Index rose by 1,5% since February and reached its highest level since October 2016. It reflects concerns regarding declining production prospects in India, Thailand and China. The favourable prospects of the sugar cane that will be harvested in Brazil, limited the upwards pressure along with the decline in global crude oil prices that decreased the demand for ethanol. 

The Meat Price Index rose slightly by 0,5%. Global beef prices rose in reaction to higher prices in America where low supply levels are expected. Pork prices rose due to increased demand in Europe ahead of the summer holidays. Despite bird flu outbreaks in various big export countries, the global prices for poultry meat fell for the ninth month in a row due to subdued global import demand. 

“While prices declined on a global level, it is still very high and continues to increase in domestic markets. It creates additional issues for food security,” Máximo Torero, the FAO’s chief economist, emphasises.

Change in SA

Paul says that the South African consumer has limited to no impact on the majority of factors that contributed to the current upswing in food inflation.

“The loadshedding situation also brings large uncertainty regarding when it will end but lowering it to stage 1 can help to decrease costs. The exchange rate remains unpredictable as global developments have a big influence on its current volatility.”

Lower food prices

Paul believes that food prices will begin to decrease in the second half of 2023 and 2024.

“The reason for this is that agriculture commodity prices have weakened over the last couple of months. Usually, there is a delay of about three to six months for prices to work their way through to the consumer level.

“Furthermore, the increasing harvest prospects indicate a further pressure on cereal and oilseed prices, which will be an advantage for the livestock sector as feed prices may trend lower.” 

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