In a landscape characterised by fluctuating inflation rates and supply chain disruptions, the agricultural sector continues to navigate challenges while adapting to changing market dynamics. The most recent data reveals that food inflation in March 2024 stood at 5.1%, marking its lowest rate since September 2020.
In the recent roundtable with the media, the spokesperson of the Competition Commission of South Africa, Siyabulela Makunga, explained that the decline in food inflation comes as a welcome relief after a period of notably higher food inflation compared to overall inflation. However, he said, consumers are still choosy in what they buy.
Too early to celebrate
“While lower food inflation may be a positive sign, food prices are still rising at a rate which may be a threat to food security. Further, cost pressures stemming from load shedding, and transport costs have not abated, and the impact of drought conditions is likely to add to pressures throughout the value chain.
“Within this context, consumer decisions to swap items in their basket for other foods, such as chicken for canned pilchards, are likely to continue and remain an important feature of grocery shopping in the coming months,” he said.
Makunga added that various factors influence food prices, and the agricultural supply chain remains susceptible to ongoing pressures arising from power outages, logistical disruptions, and challenges related to water availability in certain municipalities.
Additionally, he elaborated that the impact of the El Niño phenomenon has emerged as an additional risk to stable food prices. Amidst these challenges, the outbreak of highly pathogenic avian influenza (bird flu) in South Africa in April 2023 significantly disrupted the poultry supply chain, leading to heightened cost pressures and impacting egg prices in subsequent months.
Poultry industry was hit hard
“The 2023 avian flu outbreak caused major disruptions in the poultry industry after it was first detected in the Western Cape in April 2023. A total of 8.5 million broilers and layer chickens were culled between April and November 2023. The outbreak slowed down around October and November 2023. The consequence of lower supply for consumers was a substantial 66% increase in the price of eggs from April 2023 through November 2023.
“To supplement demand and rebuild the lost flock, import permits have been issued for nine million fertilised eggs, 945 000 day-old chicks, 62 metric tons of egg products, and 30 986 metric tons of poultry meat. Meanwhile, the supply of eggs has shown signs of recovery on the supermarket shelves since December 2023,” Makunga said.
He added that the sunflower oil market experienced a drop in producer prices attributed to an oversupply globally, while retail prices have gradually adjusted.
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Looking at bread production and maize
In the bread production sector, he added, a long-term trend of narrower margins was observed throughout 2023. Despite fluctuations in spreads between producer and retail prices, the sector remained resilient, adapting to changing market conditions.
“There has been a long-term pattern of narrower margins in bread production highlighted in our previous EFPM report. The farm-to-producer spread for brown bread increased steadily over the course of 2023 as wheat prices fell while average producer prices rose. The increases in the spread were particularly pronounced from February to April 2023 and July 2023,” he explained.
Makunga noted that there’s notable variability in the farm-to-producer spread for maize meal, with several instances where the spread exceeded the typical range.
From March to July 2023, the primary input cost of white maize decreased by 27.32%, with the farm value of a 2.5kg bag dropping from R19.81 to R14.40.
“The producer prices for maize meal didn’t decrease to the same extent, leading to wider spreads from April to August 2023, with particularly wide spreads in June and July 2023. Subsequently, from July to December 2023, the primary input cost of maize increased by 12.79%, with the farm value of a 2.5kg bag rising from R14.40 to R16.24,” he said.
Makunga said from July to December 2023, there was a significant increase in white maize input costs following a sharp decline from February to July. He added that producers did not pass on these cost increases immediately, allowing the market to stabilise and narrow the gap between input cost and producer price.
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