As 2023 unfolds, food prices in South Africa are anticipated to remain high, but a more favorable long-term outlook could provide relief for consumers in the coming months. The Bureau of Economic Research (BER) has identified a number of factors that should contribute to a tapering of food prices in the latter half of the year.
- South African food prices are expected to remain high in 2023, but a more favorable outlook predicts a tapering of prices in the coming months.
- Strong base effects, including a decrease in maize and wheat future prices and the potential stabilization of oil prices, could contribute to an easing of food price increases in the latter half of the year.
- The Bureau for Food and Agricultural Policy identified factors driving higher food prices, such as the weaker rand, persistent load shedding, and supply chain disruptions, while the Competition Commission investigates fresh produce pricing across the country.
In February, food price dynamics were caught off guard, with load shedding playing a significant role in the escalation of feed costs, fuel, fertilizers, and other operational expenses, which are ultimately passed onto the consumer. The ongoing issue of load shedding is expected to keep consumer food prices elevated, according to the BER.
The latest 2023 Q1 Retail Survey conducted by the BER revealed that nearly 80% of respondents in the nondurable (food and beverages) retail sector anticipate a more rapid increase in selling prices in 2023 Q2 compared to the same period last year. This figure is comparable to the percentage of respondents reporting a surge in selling prices during 2023 Q1.
Despite these short-term concerns, the BER remains optimistic about the food price outlook in the coming months. Strong base effects are predicted to contribute to a slowdown in the rate of food price increases in the last six months of 2023. Some of these base effects include:
- A rise in the annual rate increase for the Consumer Price Index (CPI) food component to approximately 12% in the second half of 2022, up from 7% in the first half of the year.
- A sharp drop in South Africa’s maize and wheat future prices from their 2022 peaks, with wheat prices down 9% year-on-year and maize prices 6% lower.
If futures prices remain stable or decline further, this could alleviate some of the input cost burden for certain food producers. A sustained decrease in oil prices could also positively impact food bills later in the year. However, the BER currently projects that consumer food prices will average around 9.5% in 2023.
Recent CPI data indicated that food prices reached a 14-year high of 13.6% in February, matching the highest reading since April 2009. Annual inflation rates for bread & cereals stood at 20.5%, slightly lower than January’s 21.8%. Maize meal, a crucial staple in South Africa, continues to experience high inflation rates, with its price index increasing by 2.2% between January and February, resulting in an annual rate of 34.7%.
Meat inflation also accelerated, reaching 11.4% in February, up from 11.2% in January. This marks the highest annual increase for meat since February 2018, which was also 11.4%. Meanwhile, annual inflation for the oils and fats category slowed for the sixth consecutive month, dipping to 16.7%—the lowest reading since April 2021.
The Bureau for Food and Agricultural Policy (BFAP) has identified several factors contributing to higher food prices in South Africa:
- The weakening of the rand;
- Persistent and escalating load shedding;
- Hot and dry conditions in key production areas (e.g., South America);
- Geopolitical unrest (war in Ukraine);
- Supply chain disruptions; and
- Animal diseases.
Currently, the Competition Commission is investigating food prices, specifically fresh produce, across the country. Over the past few years, concerns have been raised about the concentration and participation of farmers, as well as the overall volatility of fresh produce pricing.
The inquiry aims to determine if any features within the fresh produce value chain hinder, restrict, or distort competition in the market, including the final price of foods on store shelves. As the situation unfolds, South Africans can expect to see some relief from high food prices in the coming months, thanks to the combination of base effects and favorable market conditions outlined by the BER.
