Food consumers can look forward to putting food on the table at relatively stable prices. Economists say they do not expect food price inflation for this year and leading up to 2021, to exceed 5%.
Economists consider the results of the latest Agribusiness Confidence Index (ACI) released earlier this week as great news not only for the agriculture sector, but also for Mzansi’s food producers and its consumers.
They say the glowing report is indicative of farmers who have managed to increase farm income levels during a struggling 2020 and expect the sector to continue its trend of growth in 2021.
At 61 points, the index reached its highest level since the third quarter of 2014. This followed a notable recovery to 51 points in the third quarter of the year, suggesting that agribusiness’ optimism about business conditions in South Africa is rising.
Good news for farmers
According to Hamlet Hlomendlini, a senior agricultural economist at Absa, the rise in the ACI could not be more revealing about the status of agriculture in Mzansi.
He believes good production conditions, coupled with the weaker rand against the US dollar, rising demand for local grains from export markets and higher grain prices, have all enabled the sector to perform bullishly this year.
This, Hlomendlini says, supported farmers to improve their financial position. “Due to this and the rising ACI farmers are expected to lift up the maize area planting by 5% year-on-year to 2,75 million hectares.”
If this materialises, “South Africa could have yet another large harvest of over 16 million tonnes in 2021,” Hlomendlini believes.
From a macroeconomic perspective, this means that agriculture will again show positive growth in 2021. Hlomendlini does, however, caution for a much lower rate than the 10% year-on-year expansion that is expected this year.
Meanwhile, chief economist at the National Agricultural Marketing Council (NAMC), Dr Sifiso Ntombela, reckons the double-digit growth for this calendar year was expected.
“The first two quarters really came with good numbers. Whether you’re looking at GDP or trade numbers – all those numbers were in double digits. This simply means that the income levels at farm level has been relatively good,” he says.
He believes the positive ACI report came as no surprise and farmers, therefore, have reason to celebrate.
The increased confidence, Ntombela believes, stems from the sentiments of farmers and agriculturalists who are pleased by the good rains experienced across the country. However, the sector has also been performing outstandingly even during the hard lockdown.
“It’s important to remember, the resilience of the sector has been very much boosted by the covid-19 regulation which protected the sector. During this time the sector was growing very well,” Ntombela says.
What does this mean for consumers?
Should things go swimmingly and as planned from a production perspective in the current season, Hlomendlini does not anticipate food price inflation for this year and leading up to 2021, to exceed 5%.
“This and the fact that the monetary policy committee of the South African Reserve Bank recently decided to keep repo rates unchanged (at 3.5%), will certainly bode well for consumers, especially during these gloomy economic times,” he says.
Ntombela agrees that the ACI report brings good tidings for the South African food consumer and confirms that consumers can look forward to enjoying access to food at relatively stable prices.
“Of course, increased investment and production also means that there is availability of food which will ensure food security for the consumer. However, even if food prices do grow, the spike won’t be too high and this is, of course, good news for the consumer.”.
“The first two quarters really came with good numbers. Whether you’re looking at GDP or trade numbers – all those numbers were in double digits.” – DR SIFISO NTOMBELA
In addition, Hlomendlini adds that cracks in the broader South African economy remain the main deterrents of investment in the economy and the reason for all pessimism in the market.
“A number of government officials will have you believe that all the current misfortunes in the broader South Africa economy are all as result of the impact of covid-19, but that could not be further from the truth,” he says.
Hlomendlini explains negative influences like the energy crisis, unemployment, low confidence and high government debt, coupled with unrelenting corruption especially in government departments were already evident before the pandemic hit.