Wandile Sihlobo: What to expect from food price inflation this year

South Africa’s food price inflation averaged 3.1% y/y in 2019, which is well below market expectations.

What many analysts seem to have underestimated was the length of the period that meat prices would remain subdued for, and its influence thereafter on the overall food price inflation headline number.

This is because meat contributes 35% of the food inflation basket – a significant share.

The subdued meat price trend was largely caused by the ban on exports on the back of a foot-and-mouth disease outbreak at the start of 2019. Seeing that foot-and-mouth disease is again a challenge this year, South Africa’s meat prices could again remain subdued for the greater part of 2020.

Meat matters

But the lower base of 2019 will mean that meat will not keep overall food price inflation at lower levels in 2020, as in the previous year.

Therefore, the lower base of meat prices is one of the key factors that could add upward pressure on food price inflation this year.

Maize outlook

Another important factor is that there is still uncertainty about is the maize harvest.

In 2018/19 season, South Africa harvested 11.2 million tonnes of maize. And the current estimates for 2019/20 season vary between 12.0 and 14.0 million tonnes.

The crop in the fields is looking great, although planted way behind the normal schedule. If the next two months could bring sufficient rains, then it is plausible that South Africa could get a decent maize harvest (in a range of aforementioned estimates) which bodes well for consumers.

Key questions

The key concern remains the prospect of below-normal rainfall between this month and March 2020, which the South African Weather Service has flagged.

The question is, how will this affect the crop, which at this point is looking relatively good in most parts of the country?

Another concern is, of course, the possibility of frost later in the season as the crop is planted late – and the impact, thereafter, on crops.

In short, there is still some level of uncertainty about the maize harvest in South Africa. But in an event that we get a good maize harvest, as various market estimates reflect, then South Africa’s food price inflation should hover around 4.0% in 2020.

Under this scenario, the upside pressure will largely come from meat; it will mainly be base effects in the case of red meat, and possible slight uptick in poultry products prices.

Wandile Sihlobois a South African agricultural economist.

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