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1
Comments on Food Prices
Markets & Economic Research CentreNAMC14 October2015
2
Outline of presentation
1. International Food Price Index2. Food Price Monitoring3. Opportunities4. Policy Recommendations5. Concluding Remarks
International food prices
Source: FAO, 2015 3
Overall annual averages of real food price index, 2008-2014
01/01/1
0
01/03/1
0
01/05/1
0
01/07/1
0
01/09/1
0
01/11/1
0
01/01/1
1
01/03/1
1
01/05/1
1
01/07/1
1
01/09/1
1
01/11/1
1
01/01/1
2
01/03/1
2
01/05/1
2
01/07/1
2
01/09/1
2
01/11/1
2
01/01/1
3
01/03/1
3
01/05/1
3
01/07/1
3
01/09/1
3
01/11/1
3
01/01/1
4
01/03/1
4
01/05/1
4
01/07/1
4
01/09/1
4
01/11/1
4
01/01/1
5
01/03/1
5
01/05/1
5
01/07/1
5100
150
200
250
300
350
Meat Price Index Dairy Price Index Cereals Price Index Oils Price Index Sugar Price Index
Inde
x (2
002
-200
4 =1
00)
Meat (0.30 %), Cereals (2.05 %) and the Sugar Price (2.50 %) Indexes increased month-on-month, from June 2015 to July 2015, while the Dairy (-7.15 %) and Oils Price (-5.48 %) Indexes decreased from June 2015 to July 2015.
2,008 2,009 2,010 2,011 2,012 2,013 2,014 100
110
120
130
140
150
160
170
180
Annual averages
Fo
od
Pri
ce
Ind
ex
(2
00
2 -
20
04
= 1
00
)
4
Headline CPI and food and non-alcoholic beverage CPI
Source: Stats SA, 2015
Headline CPI Aug 2015: 4.6 %
Food and Non-alcoholic Beverages price index Aug 2015: 4.3 %
Year-on-Year: Aug 2014 vs. Aug 2015
and
Month-on-Month: Aug 2105 vs. Jul 2015
01-15 02-15 03-15 04-15 05-15 06-15 07-15 08-15 -
1
2
3
4
5
6
7
4.40 3.90 4.00
4.50 4.60 4.70 5.00 4.60
6.50 6.40 5.80
5.00 4.70 4.30 4.40 4.30
Headline CPI Food and non-alcoholic beverages
Perc
enta
ge (%
)
Suga
r and
swee
ts
Milk
, egg
s and
chee
se
Frui
t
Mea
t
Oth
er fo
od Fish
Proc
esse
d
Unpr
oces
sed
Brea
d an
d ce
real
s
Vege
tabl
es
Oils
and
fats
-4
-2
0
2
4
6
8
10
3.85.0
7.6
4.3
8.3
4.3 4.83.9
5.9
-2.4
5.7
0.2 0.8 0.7 1.80.4 1.0 0.8 0.8 1.2
-0.4
3.0
Aug 2015 vs Aug 2014 Aug 2015 vs Jul 2015
Perc
enta
ge ch
ange
(%)
5
Overall inflation and food inflation: May – August 2015
Source: Central Banks and Statistics Institutions
May June July August
CountryOverall inflation
(%)
Inflation on food
and non-alcoholic
beverages (%)
Overall inflation
(%)
Inflation on food
and non-alcoholic
beverages (%)
Overall inflation
(%)
Inflation on food
and non-alcoholic
beverages (%)
Overall inflation
(%)
Inflation on food
and non-alcoholic
beverages (%)
Botswana 3.0 1.3 3.1 1.0 3.1 1.0 3.0 1.1
Brazil 8.5 8.8 8.9 8.9 9.6 10.5 9.5 10.6
China 1.2 1.6 1.4 1.9 1.6 2.7 2.0 3.7
India 5.0 4.8 5.4 5.5 3.7 2.2 3.7 2.2
Namibia 3.0 4.5 3.0 4.1 3.3 5.3 3.4
Russia 15.8 22.4 15.3 20.7 15.6 20.4 15.8 20.0
South Africa
4.6 4.7 4.7 4.3 5.0 4.4 4.6 4.3
Turkey 8.1 12.8 7.2 9.3 6.8 9.3 7.1 9.7
United Kingdom
0.1 -1.8 0.0 -2.2 0.1 -2.7 0.0 -2.4
United States
0.0 1.6 0.1 1.8 0.2 1.6 0.2 1.6
Zambia 6.9 7.2 7.1 7.1 7.1 7.8 7.3 7.8
6
Comparison between urban and rural prices: August 2015
Source: Stats SA, 2015
ProductRural Food Prices
August 2015Urban Food Prices
August 2015Price difference
R/unit
Full cream milk – long life 1ℓ 12.88 12.89 0.01
Loaf of brown bread 700g 10.33 10.68 0.35
Loaf of white bread 700g 11.63 11.94 0.31
Special maize 2.5 kg 15.61 15.06 -0.55
Super maize 2.5 kg 20.74 20.69 -0.05
Margarine spread 500g 20.12 22.85 2.73
Peanut butter 400g 23.10 23.18 0.08
Rice 2 kg 24.13 24.15 0.02
Sunflower oil 750 mℓ 17.84 18.49 0.65
Ceylon/black tea 62.5g 10.21 10.76 0.55
White sugar 2.5 kg 28.40 28.31 -0.09
Average 0.36
Comparison between urban and rural prices: August 2015
Source: Stats SA, 2015
7
Jan-
15
Feb-
15
Mar
-15
Apr-
15
May
-15
Jun-
15
Jul-1
5
Aug-
15
170
175
180
185
190
195
200
205
185.80
188.76
192.02 192.40
194.99 194.40 195.79
199.00
180.47
184.18
186.67 187.03
189.67 189.64 191.44
194.99
Urban Rural
Inde
x (D
ec 2
012=
100)
Estimated impact of food inflation on consumers
Source: BFAP, 2015
8
Food group:
Overall inflation rate:Major contributors to inflation in this category:
Minor contributors to inflation in this category:
Non-contributors to inflation in this category:
Comments:July 2014 to July 2015
April 2014 to April 2015*
Animalprotein
+6.7 % +5.8 %
Fish (excl tuna) – tinned (+13.8 %)Chicken portions fresh (+8.8 %)Chicken portions frozen (+7.6 %)
Beef chuck (+3.2 %)
NoneAnimalprotein
Bread and cereals
+0.6 % -0.8 %White bread (+6.4 %)Brown bread (+6.0 %)
Rice (+1.3 %)Maize meal (-3.3 %)
Bread and cereals
Vegetables -2.9 % +2.4 % Cabbage (+4.2 %)Potatoes (+0.4 %)
Onions (-7.1 %)Tomatoes (-6.1 %)
Vegetables
Fruit +13.0 % +13.2 %Oranges (+34.3 %)Bananas (+8.5 %)Apples (+7.0 %)
None None Fruit
Dairy +5.5 % +11.6 %Full cream milk – long life 1ℓ (+5.5 %)
None NoneDairyEggs
Eggs +2.5 % +5.5 %Eggs 1.5 dozen (+2.5 %)
None None
Fats and oils
+6.4 % +2.4 %Brick margarine (+8.9 %)
Sunflower oil (+3.9 %)
None Fats and oils
Bean products
-0.8 % +1.7 % Baked beans (+5.5 %) NonePeanut butter (-2.9 %)
Bean products
Coffee and tea
+5.0 % +7.3 %Ceylon/black tea (+16.9 %)
Instant coffee (+3.4 %)
None Coffee and tea
Estimated impact of food inflation on consumers (cont.), July 2014 vs. July 2015
Source: BFAP, 2015
9
July 2014 July 2015R 0.00
R 1.00
R 2.00
R 3.00
R 4.00
R 5.00
R 6.00
White sugar (22g)
Tea (2.5g)
Full cream milk (56g)
Brown bread (150g)
Maize porridge cooked (532g)
Porti
on c
ost (
R)
When comparing the costs associated with the typical portion sizes of very poor consumers for the five most widely consumed food items in South Africa, based on July 2015 versus July 2014 prices the results above indicated inflation of about 6.5 % (from R4.93 to R5.25 for the selection of portions). Significant inflation on all components contributed to the inflation observed on this ‘food plate’ (maize meal (+5.4 %), bread (+6.0 %), milk (+5.5 %), tea (+16.9 %), sugar (+5.7 %)). Even though the entire food basket experienced inflation of 4.1 % when comparing July 2015 with July 2014, the typical basic daily food selection for poor consumers revealed higher inflation (6.5 % as mentioned above), suggesting a more severe impact on poorer consumers.
10
Policy Recommendations
11
Policy recommendations
• Administered/regulated prices makes a significant contribution to the over cost of producing agricultural commodities and food, i.e. increasing the cost of doing business.
• The significant increase in administered/regulated prices will affect among other things: Agriculture’s ability to produce enough and affordable food The sustainability of the sector since it directly and
indirectly influences investment, the profitability and competitiveness of the sector
• Hence, rethink the current policy environment within the ambit of the role of agriculture
12
Policy recommendations (cont)
• Accelerated, but coordinated implementation of the Food and Nutrition Security Plan for South Africa
• Bold steps need to be considered – in line with what Brazil has done – to link smallholder farmers to institutional markets – this has potential multipliers for growth of the rural economy and cutting food insecurity
• Implementation of priority programmes outlined in the APAP should be accelerated – this requires mobilisation of funds to finance support programmes such as SIP 11 that aim to provide the economic infrastructural backbone required in the rural areas
13
Concluding remarks
14
Concluding remarks (cont...1)
• Food price inflation in South Africa increased by 4.3 %, in Aug 2015. This increase is due to second round inflationary effects, largely driven by moderate increases in fuel prices and costs of utilities such as electricity.
• The moderate food inflation rates of the previous months are however expected to escalate in the third quarter of 2015 as a result of pressures related to the weakening exchange rate due to sluggish growth in China.
• Cost within the value chain could also contribute to escalating retail prices as a result of the significant exchange rate depreciation. Decreasing oil prices could serve as a mitigating factor to this.
15
Concluding remarks (cont...2)
• In terms of specific food products, maize prices in the next quarter are expected to increase due to the exchange rate issues referred to above, as well as adverse weather conditions in the US.
• If these weather conditions persist upward pressure on maize meal prices can be expected to continue until the end of 2015
16
Concluding remarks (cont...3)
• In the case of wheat, any movement in the import parity price of wheat is now mainly determined by the exchange rate as the world price is trading significantly below the reference price of $294/ton.
• Vegetable prices are expected to move sideways in this period due to increased supply associated with seasonal effects.
• Despite increased slaughtering, beef prices are supported by increased exports of high value cuts to regions such as the Middle East. Over the next three months it is anticipated that this will be exasperated as a result of higher input costs associated with maize.
17
Concluding remarks (cont...4)
• Key factors to look out for during the next three months are weather conditions of the main grain production areas in the world
• Weather conditions in the US could provide support for maize prices if it is dryer than expected which will cause an upward movement in maize meal prices towards the end of the outlook period.
18
Thank you!
Contact details:National Agricultural Marketing CouncilTel: 012 341 1115E-mail: [email protected]: www.namc.co.za