Oil price is down, but there’s no food bill saving

2015-01-11 15:00

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Oil prices are falling, but Mother Nature and a volatile currency mean your weekly food shop isn’t likely to get cheaper any time soon.

This week, the Food and Agriculture Organisation (FAO) reported a decline in its monthly global food price index in December, after three months of stability.

Christo Joubert, a researcher at the National Agricultural Marketing Council, said the horticultural (fruit and vegetables) and other sectors most dependent on transportation would react faster to lower fuel prices.

“Research has indicated that our grain industry has a lag of four months to pass lower grain prices through to the consumer,” he said.

Joubert said the possibility of lower prices in other sectors would depend on the value chain of those products, as well as the rand-dollar exchange rate.

“The poultry meat value chain, which is our largest sector, consumes maize and soya bean meal. The producers of maize and soya beans use inputs like fertiliser, pesticides and herbicides that need to be transported to the farm to produce the grains,” he explains.

“The soya bean and maize are normally transported to a silo. The farmer will be the price taker. He cannot really dictate the market price. His only decision will be to sell or store the grain, if he has the financial means to do so.

“The price of the grain, which is a function of the international price, exchange rate, and current and future stock levels, is formed at the JSE.”

The JSE index dropped almost 2% to 188.6 points and the FAO attributed this to a stronger US dollar and low oil prices.

The oil price began sliding in July last year. At that point, the US Energy Information Administration put the price of Brent crude oil at an average of $107 per barrel (R10.47 per litre).

Now it’s sitting at around $50 per barrel – a drop South Africans have experienced first-hand thanks to falling petrol prices. On Wednesday, the petrol price dropped by R1.27 a litre, which also means lower input costs for food producers.

It’s not all about oil

Louw Steytler, who is a maize farmer and the chairperson of Grain SA, said the planting process, with diesel at a higher price, had already been completed.

“But in the future, we will be able to plant a couple of crops at the lower input cost.” That should ultimately see a decrease in the food price – though other factors like the weather and a weak currency could undo any gains linked to the falling oil price.

Maize is an important agricultural commodity. It’s not just a staple for many South Africans, but is used as a feed source for many livestock. Any increase in the price of maize can also raise other commodities like meat and dairy products.

“The maize price is board of trade derived, it is dollar related and that in itself will depend on what happens to the rand-dollar exchange rate.

“And then the other input costs are also dollar derived, so hopefully if we could maintain the value of the rand, it would have a decreased effect on production costs and then on food prices in the long term,” Steytler said.

Weather woes

The weather, too, is a potential enemy of cheaper food baskets and trolleys.

Steytler said there were already reports of unfavourable weather conditions and forecasts were not looking good.

“I hear reports that it’s pretty dry in the western production areas and this will have an impact on the amount of maize produced, but it’s early days and hopefully we will receive enough grain.

“We haven’t had a devastating drought in the last 20 years, but it is a concern that some of the weather forecasts are predicting a slight [drought],” he adds.

Cautious retailers

Retailers have been cautious in their reaction to the drop in fuel price and whether this will hit the consumer’s basket in a good way.

In a statement this week, Pick n Pay said while it welcomed the recent fall in world oil prices, “fuel is only one factor in the cost of goods, so it isn’t possible to give any firm estimate of the impact”.

Shoprite Holdings was a little more optimistic.

“Shoprite controls its own internal distribution of stock and the retailer is committed to pass on any savings on the fuel bill, for its fleet of more than 400 distribution trucks, to consumers,” said a spokesperson for the company.

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