Food inflation decelerated to 6.8% y/y in July 2017, from 6.9% y/y in the previous month. This mirrors the benefits of the higher agricultural output following good summer rainfall across the country.

Although we expect further moderation in the next few months, the picture of the food basket is mixed. Most food products have decelerated, with the exception of meat which is proving stickier than expected, recording 14.4% y/y in July, which is the highest level since December 2011. This is on the back of an outbreak of avian influenza and cattle restocking process after the 2015-16 drought.

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The grain mill products, starches, sugar, oil and fats are still in deflation, after registering -17.6% y/y,-10.7% y/y, -13.2% y/y and -1.7% y/y, respectively, last month, owing to a good harvest in the 2016/17 summer production season.  Meanwhile, the 0.4% m/m uptick in fruit and vegetable inflation is somewhat reflective of the expected lower harvest in the Western Cape province due to the ongoing drought.

Meat and meat products inflation could continue to decelerate owing to an expected increase in supply – set to be boosted by anticipated uptick in slaughtering activity ahead of the festive season, as well as improving agricultural conditions. The dairy products inflation slowed by 0.5% m/m in October and likely to maintain this trend due to an expected increase in milk production during the summer season when grazing veld recovers.

As we set out in our note on 22 November 2017, while fears of avian influenza have not completely dissipated, the impact has largely been on egg layers. Broilers, which contribute to meat production, were roughly 8% of the 4.8 million birds’ culled thus far, according to data from the South African Poultry Association.

Overall, we expect food products’ price inflation to be contained at relatively lower levels for some time due to promising summer crop production in the new season and expected a recovery in the livestock industry.

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SA food products price inflation decelerates to 0.4% year on year

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• One of the products that are in deflation within the food basket is bread and cereals, falling 4.8% y/y in March 2018. This is likely to be the key theme over the next couple of months as South Africa is set for another good crop harvest, albeit being lower than the 2016/17 production season. The latest estimates point to 12.42 million tonnes of maize this production season, which is well above the annual consumption of 10.5 million tonnes. There will be large carryover stocks of 4.1 million tonnes from the current marketing year, which will boost South Africa’s maize supplies in the 2018/19 marketing year that commences in May 2018. All this will keep maize prices at fairly lower levels, which bodes well for food inflation. Moreover, the recent 45% decline in wheat import tariff to R394.85 per tonne also bodes well for food inflation for the coming months..
• Meat price inflation slowed to 10.0% y/y in March 2018, from 11.4% y/y in the previous month. While a welcome development, the ongoing cattle and sheep heard rebuilding process following drought conditions could keep meat prices at relatively higher levels compared to other products. Data from the Red Meat Levy Admin shows that farmers slaughtered 185 262 head of cattle and 286 564 head of sheep in February 2018, which is 11% and 23% lower than the corresponding period last year. 
• On balance, the relatively large grain supplies, a recovery in the sugar belt and a decline in wheat import tariff could contain food inflation at fairly lower levels in the coming months

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SA food price inflation decelerates further to 3.5%

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South African Agricultural Commodities Weekly Wrap 04 May 2018

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• The overall non-alcoholic beverages inflation was at 5.3% in April from 2.5% in the previous month. Within this category, the uptick was largely on cold beverages, which accelerated to 6.1% in April from 2.1% in the previous month. Meanwhile, hot beverages ticked up to 3.8% from 3.3% in March 2018. This shows that the overall uptick in the non-alcoholic beverages category was partly driven by the sugar tax since this is a biggest monthly jump this year, coinciding with the implementation of the tax on 01 of April 2018.
• One of the products that are in deflation within the food basket is bread and cereals, falling 3.7% y/y in April 2018. This is likely to be the key theme over the next couple of months due to expectations of large maize supplies of 16.4 million tonnes this year, well above South Africa’s annual consumption of 10.7 million tonnes.
• Meat price inflation slowed to 9.0% y/y in April 2018, from 10.0% y/y in the previous month. This downward trend could be sustained as cattle slaughtering activity is expected to gain momentum. The United States Department of Agriculture suggests that the number of cattle to be slaughtered in 2018 could increase by 4.0% from the previous year to 3.5 million head following a general recovery in the industry performance.
• While the introduction of new taxes presents upward pressures, the relatively large domestic grain and global sugar supplies, combined with the expected increase in cattle slaughtering activity could still contain food inflation at fairly lower levels in the coming months.

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SA food price inflation ticked up slightly to 3.9% year on year in April 2018

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