SUNDAY TIMES - Blighted crops take heavy toll on prices
Sunday Times Business By ASHA SPECKMAN and PALESA VUYOLWETHU TSHANDU, 2016-07-17 00:00:00.0

Blighted crops take heavy toll on prices

The price of staples such as a 25kg bag of maize meal has jumped 22.3% to R212.98 from R174.15.

Consumers are paying at least 14% more for a basket of food than a year ago after the worst drought in decades contributed to lower agricultural output, research shows.

The price of staples such as a 25kg bag of maize meal has jumped 22.3% to R212.98 from R174.15 in June last year, the food basket barometer of the Pietermaritzburg Agency for Community Social Action shows.

Wandile Sihlobo, head of economic and agribusiness intelligence at Agbiz, said maize was a basic food for South Africans, who consume an average of 10.5million tons annually.

Last month, the National Agricultural Marketing Council food barometer found that from May 2015 to May this year the price of a basic food basket increased by about 15.97%.

The council's basket consists of 22 items, including oranges per kilogram, 400g of peanut butter, 5kg of maize meal, beef chuck per kilogram, 62.5g of Ceylon tea and a tin of baked beans (410g).

The Pacsa findings, due to be published later this month, also reflect double-digit percentage increases year on year for eggs, beef and polony. A tray of 30 eggs is 10.9% more expensive than the R35.74 it cost last year. A 1kg pack of beef costs 17.2% more, and for 2.5kg of polony, consumers are paying 19.3% more than a year ago.

Canned fish, chicken pieces and chicken feet are cheaper than 12 months ago.

But Julie Smith, research and advocacy co-ordinator at Pacsa, said the anticipated reduction in chicken prices following the import of bone-in chicken as a result of a firmer preferential trade agreement with the US earlier this year was not yet reflecting on the barometer.

The biggest jump on the barometer was for spinach. Households that bought four bunches of spinach a month pay on average 108.7% more - R30.57, compared to R14.65 a year ago.

Pacsa's barometer has been tracking the food that working-class households buy, in the quantities they buy and from the same supermarkets, since 2006. The results are published monthly.

Consumers are changing their buying patterns to cope with higher prices.

"There has been a definite shift towards more affordable alternative proteins such as pork and chicken, especially in the middle and lower LSM [living standards measure] groups," said Shoprite.

Consumers are also buying "private label and house brand products to help their budgets", but those earning higher salaries remained loyal to established, high-end brands of red meat, the food retailer said.

There is not much room for prices to go higher. All the negative stuff to a large extent has already been priced in

Woolworths said it tried to keep price increases to an "absolute minimum" but was hamstrung by factors outside its control, such as the drought; the depreciating rand; increases in the cost of maize for feed, much of which needs to be imported; and rising fuel, electricity and packaging prices.

A Standard Bank study published last month showed that consumers, depending on income level, experienced different levels of inflation. Those earning up to R19,000 a year are expected to suffer the highest rate of inflation, 8.6% year on year in 2016, because food accounts for a third of their budget.

The emerging middle class - those earning between R197,001 and R400,000 a year - were slightly better off and could experience inflation of 7.4%, of which food contributes 1.4 percentage points.

Inflation for the upper-middle class, those who earn between R688,001 and R1.4-million, is expected to be 7.2%, of which food contributes 0.7 percentage points.

The official inflation figure for May, the latest available, is 6.1%.

Sihlobo said food prices were likely to remain high. The dip in food inflation in May was due to a reduction in the slaughtering of animals as the weather improved.

Slaughtering was 2% lower in June than in May, Sihlobo said.

He forecasts that food inflation will reach 12% this year, with an improvement in mid-June 2017. If rainfall increases and crops begin to recover, harvesting would begin at the end of April next year. "With the processing lag, that [a price decrease] can only start to hit the retailers mid-2017," he said.

As the weather improves, the prices of raw commodities such as maize and wheat will soften in February next year.

But Sihlobo said: "There is not much room for prices to go higher. All the negative stuff to a large extent has already been priced in.",