Increased agricultural output in SA leads to slower inflation

The 2017 season shows the South African agricultural sector is recovering well after recurring drought that ended in 2016. Large outputs are driving decelerated inflation.

According to South African business chamber Agbiz, South African food product price inflation slowed down to 1.9% y/y in August from 3.3% y/y in July 2017.

This was largely driven by a decline in the price of field crop, dairy and meat and products.

The decline in agricultural commodity prices is largely driven by the record commercial crop harvest. The Crop Estimate Committee last week again raised its estimate for commercial maize production to 16. 744 million tons for the 2017 production year in their eighth and last production estimate for the year.

According to researcher Johann Strauss, the amount of white maize used in local feed production increased in the first four months of the marketing year.

He said this new market opportunity can be a solution to the glut seen in the white maize export market.

Meat price inflation also decelerated from 17.8% in July to 16.8% y/y in August, partly due to higher slaughter activity.

However, there are still risks associated with the outbreak of avian influenza, which affected a small number of broilers.

A worrying factor is the drought conditions in the western parts of the country. Farmers in the Western Cape recorded a third year of below-average rainfall. This led to low dam levels at the end of the winter rainfall season. It is a concern to the wine, fruit and vegetable industries which rely on irrigation for production. They also produce for the export market.

The winter rainfall in this area is also mainly responsible for wheat and barley production in the country.

The northern parts of the country received good rains during the summer rainfall season. Therefore, grazing and plant conditions improved, leading to lower prices.

In the short to medium term, the large agricultural harvest will keep commodity prices under pressure, but the new season indicates a continuation of good summer rainfall, which should lead to a good harvest for the next season.

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