Sugar, milk, meat price hikes could stay high

Cape Town - South Africa’s annual food and beverages inflation fell to 8.7% year-on-year (y/y) in March 2017 from 9.9% in February 2017 - the lowest level in 14 months.

While overall food inflation is likely to decelerate further over the coming months on the back of large supplies, sugar, milk and meat inflation could remain at relatively higher levels, according to Wandile Sihlobo, agricultural economist at the Agricultural Business Chamber (Agbiz).

"As the winter season approaches, milk production could decline, in line with seasonal trends," he added.

He pointed out that the benefits of the uptick in agricultural production are already reflected in food prices. This is despite lag effects between the decline in agricultural commodity prices and retail food prices.

INFOGRAPHIC: How food prices spiked in the last year

The general drop in food inflation is largely on the back of a broad recovery in agricultural production, said Sihlobo.
 
Maize production is estimated at 14.3 million tonnes, the second-biggest crop on record after 1980/81.

"This uptick in production is underpinning a bearish trend in agricultural commodity prices, which is expected to prevail for the better part of the year," he explained.

However, the picture of the food inflation basket was mixed. While the majority of products decelerated, non-alcoholic beverages, sugar, sweets and desserts accelerated.

The uptick in sugar, sweets and desserts is partly on the back of an expected decline in sugar production this year. BMI Research forecasts a 1% fall in SA’s 2017 sugar production to 1.66 million tonnes.
 
According to Sihlobo, this would be the second consecutive annual decline, following a 23% drop in 2016 due to the drought.

Meat inflation remained unchanged from the previous month at 9.9% y/y as slaughtering activity slowed down, with farmers continuing to restock their herds following a drought season.

In February 2017, farmers slaughtered 192 186 head of cattle, a 17% annual decline.


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