Food Price Index ends 2022 lower than a year ago

FIFI PETERS: Talking to my colleague Aldrin Sampear, I said I went grocery shopping yesterday, just stocking up on all the things that I’d need as I knew I was returning to work today. My eyes popped when the cashier rang up the total bill. I really wasn’t expecting to pay as much as I did, because I bought mostly fruit and vegetables and other basic items like milk and rice. So no major luxuries.

But I’m sure I’m not alone in terms of feeling the pinch of higher food prices. I can tell you that we are not even alone as South African consumers. Consumers all over the world are feeling that pinch because, according to the United Nations Food Agency, world food prices ended 2022 sharply higher. And the index that it uses to measure the prices of basic staples like meat and dairy and cereals and vegetables and sugar and the like ended the year at its highest level since the UN started recording food prices. That was back in 1990.

To help us digest this and also discuss where food prices are headed in 2023, I’m joined by Wandile Sihlobo, chief economist at Agbiz, the Agricultural Business Chamber of SA. My friend, thanks so much for taking the time to talk to us. Compliments of the new year.

WANDILE SIHLOBO: Happy new Year, Fifi. Thanks for having me on.

FIFI PETERS: This is pretty frightening stuff. First of all, I wanted to cry when the cashier told me exactly how much I had to pay at the end of doing my groceries. I think it’s pretty scary stuff that food prices went up as much as they did in 2022. Just help us remember exactly what the push was. Was this all the Ukraine-Russia war, or were the other factors at play here?

WANDILE SIHLOBO: The Russia-Ukraine story came in an environment where food prices were already elevated. Before that [there was] drought in South America, Brazil and Argentina, which are the key players when you think about the grains and the oil seeds.

In addition to that, we had China buying a lot of soybeans, a lot of grains, three years or so before we saw all of the chaos that was in the global food-price dynamics.

We also had a bit of a drought around Indonesia, which is an important player when you think about palm oil. So, as [with] the Russia-Ukraine war, it gets into that environment where there are already these supply constraints. And, of course, you could add that there [are] some of the logistical difficulties brought by Covid. So the war added into that environment. That was already off elevated food prices.

Read: World food prices hit record high in 2022 despite December fall

And South Africa of course, a small player interlinked to the global environment… Whatever was happening in the world was more important than what was happening in the Free State or KwaZulu-Natal, as far as the crop conditions in those provinces.

So those global sectors were guiding even the domestic prices because in those years leading up to the Russia-Ukraine war we had had good agricultural seasons. But prices were not responding as much to the domestic good harvest, largely because of these global factors that were driving up our prices.

FIFI PETERS: How different do you expect the picture to be this year?

WANDILE SIHLOBO: I think the first point to also highlight is that the prices that made your eyes a bit wet yesterday were not a unique story to South Africa. If you had to look, for example, [at] food-price inflation in the EU, in Brazil, Kenya and other countries, these countries have seen food-price inflation of over 13% for much of the second half of last year.

South Africa had also seen of course food-price inflation rising to that extent. If you had to look at the November numbers, we were [at] somewhere around 12.8% averaging much of last year’s food-price inflation… We think that for South Africa it would be around about 9%.

But this year, 2023, will actually be relatively better. We see prices rising at a softer pace – somewhere between 5.5% to 6%, give or take.

I think [things] will be in that range, the base effect issues. But also, I think the development on the global commodity-price trajectory is starting to soften, which is what we are seeing now coming out of the global environment where prices of certain products are softening.

So this year is likely to be better than we saw last year as far as the pace of increase of prices.

FIFI PETERS: Even with load shedding and the added cost?

WANDILE SIHLOBO: Even with load shedding being an added cost, I do think that this year the pace of the increases is going to be slightly softer than we saw last year. But we are [likely] to see in South Africa that the responsiveness to the decline in the global commodity prices is not going to be as fast as some people maybe in other countries might enjoy. But I think [as to] the point you are raising about load shedding, energy prices – all of those will be the important things to watch.

The numbers that I’m putting out now assume that we see fewer prices remaining at more accommodative levels for some time. But if of course, if fuel prices start to increase or anything of that sort happens, all of this will change slightly. But with the information we have I’m a bit more positive.

FIFI PETERS: Just circling back to what you said, you said that the responsiveness of food prices in South Africa may not be as strong as in other parts of the world to falling global food prices. I just want to understand if you were saying that the reason why our prices may not come down as much as in other parts of the world is because of load shedding, or is it also because of other factors?

WANDILE SIHLOBO: I think this goes back to the initial point I was making, where I was saying food-price inflation in South Africa could average 9% this year. Elsewhere in the world it [has been] much higher than that. It seems to me that some of the food companies have actually been able to absorb some of the increases, and not pass them on as aggressively last year.

Now, if things begin to change where commodity prices are starting to soften, you may actually see prices sticking a bit more on a downward side…

And the other thing we have to always keep in mind is that what we see are agricultural commodity prices, the farm level prices. Then for that to go [on] to the retail shelves, there’s a lot that needs to be done in manufacturing.

If you were to do an academic exercise looking at the time lag on the pass-through of prices from farm level going into the retail level, you are looking at something around three months back. So in all of this I’m explaining it, to say it builds on that pass-through, to say just because maize prices may be starting to show a bit of a decline, you’re not going to get into your retail shelf and see that being reflected quickly as such. There’s a lot that’s going to come in there.

But still the year [2023] is likely to see a better food-price inflation trajectory compared to 2022.

FIFI PETERS: Okay. The weather? I mean the climate – how is that likely to impact the things that go into our shopping baskets and ultimately our stomachs?

WANDILE SIHLOBO: The weather has actually been positive for us. We are in the fourth year now of a good agricultural season, good rainfall. I was driving across South Africa for much of the December holiday – from here to Port St Johns, KZN and the others – and what I saw from a distance is that agricultural conditions are fairly favourable.

Yes, there are areas which have received more rain than we bargained for, but I think on a broader basis we are likely to have a fairly good season.

Farmers there indicated that they would even increase the area planting this year by 1% compared to last year.

That speaks to that optimism, and I was actually happy to see that, because I was worried with higher input costs they [might] end up being in a position where they slightly reduce the area planted. But they were positive.

So by the end of this month going into next year we’ll have a much clearer view about the potential size of the harvest. But things do look fairly positive and all of this then bodes positively for the food prices in the medium term.

FIFI PETERS: Okay. We’ll catch up with you then at the end of the month when we’ve got the latest numbers indicating the size of the harvest for this year. That was Wandile Sihlobo, the chief economist at Agbiz.

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