1

Food Price Review

2

Presentation outline

• Background on NAMC’s role in food price monitoring

• International Trends

• Local Trends– Long term trends (CPIX & CPI Food)– Short term

• Factor impacting on food prices locally

• Short-term outlook

3

Background

4

NAMC’s involvement in food price monitoring

• Food price crisis of 2002• Minister of agriculture appointed a Committee (FPMC) – to

present a report by end of 2003• FPMC findings:

– No “foul play” behind price rises– Main factors: exchange rate, prices of raw materials

• FPMC recommendations:– NAMC should implement a system of food price

monitoring – to help DoA, etc. make informed policy decisions/interventions

5

Implementation of FPMC recommendations

• NAMC set up a system of food price monitoring to track and report on food price trends in South Africa ; and

• To provide explanations on the observed trends and advise DoA on possible actions

• Urban Food Price Monitoring:– From 2004, retail food price data from urban areas was

sourced from AC Nielsen (basket of 75 food items)– From this data, since 2004:

• 1 Annual Food Cost Review per year• 4 Quarterly Price Trends reports per year

6

Implementation of FPMC recommendations

• Rural Food Price Monitoring– In November 2006, collection in the rural areas

commenced– Data collected by provincial department of

agriculture (PDA) officials from all nine provinces

7

Implementation of FPMC recommendations

• Scope Rural Food Price MonitoringProvince Number of outlets Number of price collectors

Western Cape 19 12

Free State 28 10

Mpumalanga 23 9

Gauteng 13 6

North West 23 6

Eastern Cape 18 7

KwaZulu-Natal 27 15

Northern Cape 17 5

Limpopo 21 23

Total 189 93

8

Implementation of FPMC recommendations

• Training Rural Food Price Monitoring – Price collection procedures– Two national training sessions– Several training visits to provinces (see Table below)

Province Number of training visits

Western Cape 3

Free State 2

Mpumalanga 3

Gauteng 0

North West 3

Eastern Cape 2

KwaZulu-Natal 2

Northern Cape 2

Limpopo 1

Total 18

9

Ongoing Developments

• Developing good working relations with Statistics SA to ensure consistent data releases to the public– NAMC staff seconded to Statistics SA– NAMC regularly assist Statistics SA with selected tasks

• Implementation of Input Cost Monitor – Provides a view of the other side of the value chain– To date Grain and Fruit Input Cost Monitor reports were published

10

International Trends

11

• Wall Street Journal – Higher Food Prices to Hit Europe

– “The global rise in food prices is catching up with continental Europe, adding to mounting inflation worries… Rising global food demand, freakish weather and the trend to reroute crops for biofuels are pushing up food-commodity prices globally”

– Standard & Poor's GSCI Excess Return Index, which measures the price movements of eight agriculture commodities -- including wheat, sugar and corn -- is up 10% in the past year.

• China Daily - Price rises take a toll in Shanghai

– “The average price of pork at the city’s markets has increased 25 percent…”

– “Prices of fish and chicken have also increased 10 to 15 percent from the year before.”

12

• China (continue)

– Consumer prices for food were up 15.4 percent in July from a year ago (International Herald Tribune)

• Financial Post – Get ready for food-price spike – The U.S. producer price index for raw food and feedstuffs

was up 19% or more year-over-year from February to June • topping 30% in May for the first time since 1974.

– The Economist Intelligence Unit forecast the price of grains and oilseeds will rise 16% and 29%, respectively, this year.

13

Food prices in Bangladesh and India

14

Reasons for international trends– Global shortage of grains (low stocks, drought in major

producing areas, high input costs and biofuels)

– Changing diets, particularly of Chinese and Indians• E.g. the number of urban Chinese households qualifying as middle

class rose to 42 million in 2005 from 7.6 million in 1995

• Will hit 199 million in 2015 (McKinsey Quarterly)

– Global meat and milk consumption is up more than 3% and 2%, respectively, on average over the past three years. (USDA)

– More affluent consumers in developing countries

– Diseases in livestock

15

Domestic Trends

16

General & Food Inflation Trends: (Jan 1991 to Sep 2006)

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Jan-

91M

ay-9

1S

ep-9

1Ja

n-92

May

-92

Sep

-92

Jan-

93M

ay-9

3S

ep-9

3Ja

n-94

May

-94

Sep

-94

Jan-

95M

ay-9

5S

ep-9

5Ja

n-96

May

-96

Sep

-96

Jan-

97M

ay-9

7S

ep-9

7Ja

n-98

May

-98

Sep

-98

Jan-

99M

ay-9

9S

ep-9

9Ja

n-00

May

-00

Sep

-00

Jan-

01M

ay-0

1S

ep-0

1Ja

n-02

May

-02

Sep

-02

Jan-

03M

ay-0

3S

ep-0

3Ja

n-04

May

-04

Sep

-04

Jan-

05M

ay-0

5S

ep-0

5Ja

n-06

May

-06

Sep

-06

Annual growth CPI-Food Annual growth CPI-All Annual growth CPI-ExFood

17

Food Price Review – Grain products

-60%

-40%

-20%

0%

20%

40%

60%

80%

Jul-9

3N

ov-9

3M

ar-9

4Ju

l-94

Nov

-94

Mar

-95

Jul-9

5N

ov-9

5M

ar-9

6Ju

l-96

Nov

-96

Mar

-97

Jul-9

7N

ov-9

7M

ar-9

8Ju

l-98

Nov

-98

Mar

-99

Jul-9

9N

ov-9

9M

ar-0

0Ju

l-00

Nov

-00

Mar

-01

Jul-0

1N

ov-0

1M

ar-0

2Ju

l-02

Nov

-02

Mar

-03

Jul-0

3N

ov-0

3M

ar-0

4Ju

l-04

Nov

-04

Mar

-05

Jul-0

5N

ov-0

5M

ar-0

6Ju

l-06

Nov

-06

Annual growth CPI-Grain

Annual growth PPI-Grain

Post deregulation period

18

Food Price Review – Veg, Fruit & Nuts

-40%

-20%

0%

20%

40%

60%

80%

100%Ja

n-91

May

-91

Sep

-91

Jan-

92M

ay-9

2S

ep-9

2Ja

n-93

May

-93

Sep

-93

Jan-

94M

ay-9

4S

ep-9

4Ja

n-95

May

-95

Sep

-95

Jan-

96M

ay-9

6S

ep-9

6Ja

n-97

May

-97

Sep

-97

Jan-

98M

ay-9

8S

ep-9

8Ja

n-99

May

-99

Sep

-99

Jan-

00M

ay-0

0S

ep-0

0Ja

n-01

May

-01

Sep

-01

Jan-

02M

ay-0

2S

ep-0

2Ja

n-03

May

-03

Sep

-03

Jan-

04M

ay-0

4S

ep-0

4Ja

n-05

May

-05

Sep

-05

Jan-

06M

ay-0

6S

ep-0

6

Annual growth CPI-Food

Annual growth CPI-Fruits & Nuts

Annual growth CPI-Vegetables

Yea

r on y

ear in

flatio

n

19

Food Price Review – Sugar, cofee, tea &cocoa

-5%

0%

5%

10%

15%

20%

25%

30%

35%Ja

n-91

May

-91

Sep

-91

Jan-

92M

ay-9

2S

ep-9

2Ja

n-93

May

-93

Sep

-93

Jan-

94M

ay-9

4S

ep-9

4Ja

n-95

May

-95

Sep

-95

Jan-

96M

ay-9

6S

ep-9

6Ja

n-97

May

-97

Sep

-97

Jan-

98M

ay-9

8S

ep-9

8Ja

n-99

May

-99

Sep

-99

Jan-

00M

ay-0

0S

ep-0

0Ja

n-01

May

-01

Sep

-01

Jan-

02M

ay-0

2S

ep-0

2Ja

n-03

May

-03

Sep

-03

Jan-

04M

ay-0

4S

ep-0

4Ja

n-05

May

-05

Sep

-05

Jan-

06M

ay-0

6S

ep-0

6

Annual growth CPI-Food

Annual growth CPI-Sugar

Annual growth CPI-Tea, coffee & cocoa

Yea

r on y

ear in

flatio

n

20

Food Price Review – Processed and unprocessed

-20%

-10%

0%

10%

20%

30%

40%

50%

Jan-9

1M

ay-9

1S

ep-9

1Jan-9

2M

ay-9

2S

ep-9

2Jan-9

3M

ay-9

3S

ep-9

3Jan-9

4M

ay-9

4S

ep-9

4Jan-9

5M

ay-9

5S

ep-9

5Jan-9

6M

ay-9

6S

ep-9

6Jan-9

7M

ay-9

7S

ep-9

7Jan-9

8M

ay-9

8S

ep-9

8Jan-9

9M

ay-9

9S

ep-9

9Jan-0

0M

ay-0

0S

ep-0

0Jan-0

1M

ay-0

1S

ep-0

1Jan-0

2M

ay-0

2S

ep-0

2Jan-0

3M

ay-0

3S

ep-0

3Jan-0

4M

ay-0

4S

ep-0

4Jan-0

5M

ay-0

5S

ep-0

5Jan-0

6M

ay-0

6S

ep-0

6

Annual growth CPI-Processed Annual growth CPI-Unprocessed

Deregulated market

Exchange rate depreciation

Year on y

ear in

flatio

n

21

Relationship between food price inflation in

rural and urban areas

January 2004 January 2005 January 2006 January 2007

Urban Rural Urban Rural Urban Rural Urban Rural

CPI-food 135.4 139.1 137.2 139.7 142.9 143.7 155.4 156.2

Inflation: Total Food

2.73% -0.57% 1.33% 0.43% 4.15% 2.86% 7.92% 8.00%

Inflation: Grain Prod

-0.61% -10.48% 1.61% -2.69% -0.23% -1.74% 7.04% 9.67%

22

CPI Food for rural and metropolitan areas: January 2002 – December 2006

110

115

120

125

130

135

140

145

150

155

160

Jan-0

2

Mar-02

May-

02

Jul-02

Sep-0

2

Nov-

02

Jan-0

3

Mar-03

May-

03

Jul-03

Sep-0

3

Nov-

03

Jan-0

4

Mar-04

May-

04

Jul-04

Sep-0

4

Nov-

04

Jan-0

5

Mar-05

May-

05

Jul-05

Sep-0

5

Nov-

05

Jan-0

6

Mar-06

May-

06

Jul-06

Sep-0

6

Nov-

06

Metropolitan areas VPI30100

Rural areas VPR30100

Index

(20

00=10

0)

23

CPI grains products for rural and metropolitan areas: January 2002 –

December 2006

105

110

115

120

125

130

135

140

145

150

Jan-

02

Mar

-02

May

-02

Jul-0

2

Sep

-02

Nov

-02

Jan-

03

Mar

-03

May

-03

Jul-0

3

Sep

-03

Nov

-03

Jan-

04

Mar

-04

May

-04

Jul-0

4

Sep

-04

Nov

-04

Jan-

05

Mar

-05

May

-05

Jul-0

5

Sep

-05

Nov

-05

Jan-

06

Mar

-06

May

-06

Jul-0

6

Sep

-06

Nov

-06

Metropolitan areas VPI30101 Rural areas VPR30101

Index

(20

00=10

0)

24

CPI dairy and eggs products for rural and metropolitan areas: January 2002 –

December 2006

110

120

130

140

150

160

170

Jan-0

2

Mar-02

May-

02

Jul-02

Sep-0

2

Nov-

02

Jan-0

3

Mar-03

May-

03

Jul-03

Sep-0

3

Nov-

03

Jan-0

4

Mar-04

May-

04

Jul-04

Sep-0

4

Nov-

04

Jan-0

5

Mar-05

May-

05

Jul-05

Sep-0

5

Nov-

05

Jan-0

6

Mar-06

May-

06

Jul-06

Sep-0

6

Nov-

06

Metropolitan areas VPI30104Rural areas VPR30104

Index

(20

00=10

0)

25

CPI vegetable for rural and metropolitan areas: January 2002 – December 2006

110

115

120

125

130

135

140

145

150

Jan-0

2

Mar-02

May-

02

Jul-02

Sep-0

2

Nov-

02

Jan-0

3

Mar-03

May-

03

Jul-03

Sep-0

3

Nov-

03

Jan-0

4

Mar-04

May-

04

Jul-04

Sep-0

4

Nov-

04

Jan-0

5

Mar-05

May-

05

Jul-05

Sep-0

5

Nov-

05

Jan-0

6

Mar-06

May-

06

Jul-06

Sep-0

6

Nov-

06

Metropolitan areas VPI30107 Rural areas VPR30107

Index

(20

00=10

0)

26

General & Food Inflation Trends(Oct 2006 to July 2007)

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07

CPIX CPI-Food

27

Short term food price monitoring

28

Products monitored by NAMC

• Basket of 75 products from urban areas (since 2004)

• Since November 2006, food price monitoring in rural areas commenced– 26 food products– 180 rural outlets throughout all 9 provinces

29

Latest NAMC food price trends(July 2006 – July 2007)

• Retail food prices increased by 13.76% on average

•white bread (12.89%)

•brown bread (8.39%)

•maize meal super (22.01%),

•maize meal sifted (20.39%)

•fresh milk 2L full cream (26.345%)

•fresh milk 2L low fat (26.12%)

•long-life full cream (29.31%)

• streaky bacon (14.13%)

• brisket beef (18.91%)

• pork chops (46.54%)

• lamb chops (15.38%)

• beef mince (14.48%)

• beef stewing (7.61%)

• frozen chicken (30.18%)

• fresh whole chicken (23.91%)

30

Latest NAMC urban food price trends(July 2006 – July 2007)

• Some items whose prices decreased (urban):– Eggs (-4.14%)– Tomatoes (-4.47%)– Hubbard squash (-9.95%)– Bananas (-20.23%)

• (due to normal seasonal fluctuations)

31

Latest NAMC rural food price trends(Jan 2007 – July 2007)

• Prices observed for only 16 products (some with two or more sizes)

•Brown bread loaf 600g (6.37%)

•Maize meal 1kg (8.31%)

•Maize meal 2.5kg (15.00%)

•Maize meal 12.5kg (24.11%)

•Maize meal 5kg (13.84%)

•Samp 1kg (14.84%)

•Samp 2.5kg (7.61%)

• Full cream long life milk1ℓ (20.00%)

• Full cream long life milk 500ml (7.78%)

• Rice 1kg (8.63%)

• Rice 500g (6.48%)

32

Latest NAMC rural food price trends(Jan 2007 – July 2007)

• Some decreases in the rural areas:– Margarine 125g (-1.70%)– Beans 410g (-0.86%)– Sugar 2.5kg (-0.34%)– Rice 2kg (-9.28%)

33

Urban-rural comparison

Product Size

Urban prices Rural prices Urban price

change

Rural price

change

Jan-07

Mar-07

May-07

Jul-07

Jan-07

Mar-07

May-07

Jul-07

Jan 07 to Jul 2007

Jan 07 to Jul 2007

Loaf of brown bread

700g 4.44 4.68 4.67 4.65 4.62 4.60 4.74 4.82 4.71% 4.29%

Loaf of white bread

700g 4.70 5.18 5.24 5.31 5.10 5.19 5.47 5.39 13.08% 5.71%

Maize meal [1] 5kg 15.47 16.44 18.92 19.22 21.40 21.6 22.79 24.36 24.20% 13.84%

Cooking oil 750ml 7.30 7.11 7.49 8.02 8.38 8.51 8.51 8.82 9.86% 5.26%

Block type margarine

500g 7.97 7.97 8.68 8.44 8.01 8.04 7.98 8.56 5.83% 6.91%

Full cream long life milk

1ℓ 6.48 6.71 6.95 8.01 6.85 7.14 7.47 8.22 23.61% 20.00%

Pilchards in tomato sauce

425g 7.58 7.50 7.68 8.01 8.91 8.92 9.35 9.64 5.64% 8.15%

Peanut butter 410g 9.73 10.02 10.40 10.88 11.22 11.7 12.11 11.91 11.80% 6.14%

Sugar 2.5kg 13.88 13.64 13.50 13.78 16.28 16.4 16.43 16.51 -0.75% 1.39%

Average 10.89% 7.97%

[1] Super and special maize meals prices are averaged

34

Factors impacting on food prices locally

35

Different factors

• Price movements internationally

• International agricultural policies

• Monetary policy

• Demand factors

36

Price movements: Oil pricesAll Countries Spot Price FOB Weighted by Estimated Export Volume

(Dollars per Barrel)

20.00

30.00

40.00

50.00

60.00

70.00

80.00

37

Price movements: World cereal prices

50

100

150

200

250

300

350

400

JAN 0

3

MAR 0

3

MAY 0

3

JULY

03

SEP 03

NOV 03

JAN 0

4

MAR 0

4

MAY 0

4

JUL

04

SEP 0

4

NOV 0

4

JAN 0

5

MAR 0

5

MAY 0

5

JUL

05

SEP 0

5

NOV 0

5

JAN 0

6

MAR 0

6

MAY 0

6

JULY

06

SEP 06

NOV 06

JAN 0

7

MAR 0

7

MAY 0

7

Maize ( US No. 3 Yellow) Wheat (US No. 2 HRW) Soybeans (US No. 1) Rice (Thai 100% B 2nd grade)

38

Price movements: Maize

Local versus international maize prices

0

500

1000

1500

2000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Year

Ra

nd

/to

n

SAFEX White Maize spot price CBOT R/ton

SAFEX Yellow Maize spot price

CIF costs must still be added to CBOT price

39

Price movements: Meat prices

0.00

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

U.S. Beef Export U.S. Broiler Cuts Export U.S. Frozen Pork Export

40

Price movements: Dairy prices

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Dairy_Whole Milk Powder

41

Agricultural policies

2%4% 4% 5% 6% 7%

13% 14%18% 19% 21% 22%

24%27%

30%34%

58%

64%67%

71%73%

New

Zealan

d

Brazil

Au

stralia

So

uth A

frica

Ru

ssia

Ch

ina

Po

land

Tu

rkey

Un

ited States

Slo

vak R

epu

blic

Can

ada

Mexico

Czech

Rep

ublic

Hu

ng

ary

OE

CD

EU

Japan

Ko

rea

Iceland

No

rway

Sw

itzerland

Source: OECD database 2005

42

Monetary policy• A long-run relationship between South African

agricultural and industrial prices, the exchange rate and money supply. – This implies that changes to macroeconomic

variables find their way into the agricultural sector.

• Agricultural prices adjust faster than industrial prices to innovations in money supply – Agricultural prices overshoot their long-run values

in the short run. – When monetary shock occurs then:

• Increased volatility and uncertainty in prices

43

Monetary policy

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

Jan -

04

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan -

05

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan -

06

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan -

07

Feb

Mar

Months

Mo

ne

y s

yp

ply

an

d c

red

it (

R m

illio

n)

0

200000

400000

600000

800000

1000000

1200000

Dis

po

sa

ble

inc

om

e (

R m

illio

n)

M3 money supply Total credit extension

Credit to households Disposable income

Source: SARB, 2007

44

Demand side

• Increasing population– Impact of immigration and not knowing how many

additional people are in the country

• Increasing incomes– Including basic income grants

• Changing consumer pattern– Healthier lifestyles

45

Looking ahead in the short-term

• Maize & wheat prices expected to remain high leading to high maize meal & bread prices

• Beef & lamb prices expected to remain high

• Dairy products are expected to remain relatively high

46

Wheat to Bread Value Chain• NAMC under the instruction of the Minister of agriculture

established a Section 7 committee to investigate the Wheat-to-Bread Value Chain and develop a turn-around strategy for the industry– Work plan

• Section 7 committee already established• Review of recent and current research reports on the Wheat-to-

Bread Value Chain• Request stakeholders at different levels of the chain to make formal

submissions to the Section 7 Committee• Review submissions and request further clarifications/supporting

information from chain• Submit recommendations to Minister of Land and Agriculture by

end of March 2008

47

Retail Market Power-Dairy Industry

• Dairy investigation– The impact of market power and dominance of supermarkets on

agricultural producers in South Africa– Preliminary results

• Points out conduct by retailers that could have negative long term impacts on the agricultural and food industry.

• Retailers avoid price increases through various techniques and procedures and do have the ability to smooth out price changes and ensure gradual increases over time.

• This might be beneficial to the consumer but there is now enough evidence that this is done at the cost of suppliers.

• This ultimately could have long term negative effects for society as a whole in the form of greater concentration of suppliers and potential shortage of food supplies.

• Similar findings in UK.• The report will form part of NAMC submission to the competition

commission.

48

What can we do• Supply side constraints to increase farmers confidence :

– Land reform beneficiaries are faced with big challenges, for example• Land right issues complicate their access to finance and credit • Skills and knowledge transfer (tacit knowledge and core

competencies)• Technology transfer• Extension support• Inadequate or complete lack of infrastructure• Unaligned institutional support, etc

– Investment in research, infrastructure and new production areas

– Address high input costs challenges

49

What can we do

• Demand side constraints to increase farmers confidence :– Develop new markets that will encourage an increase in production– Provide a package of incentives that will allow smme to compete– Re-think the way we use tariffs

50

What is government doing?

• Social grants transfers

• Food security programmes

• Zero-rating of certain food stuff (19)