Food inflation to ease up soon for consumers
March 11, 2009
By Ethel Hazelhurst
South African consumers should experience lower food inflation over the next few months, according to Arthur Kamp, an economist at Sanlam Investment Management.
In spite of agricultural producer prices falling recently, food prices at the manufacturing and retail levels have continued to rise.
Kamp said the benefits of lower prices at the farm gate were about to kick in, however.
Food inflation at consumer level would be in single digits by the middle of the year, "slowing to close to zero by the end of the year, provided the currency doesn't put pressure on producer prices", he said.
News agencies reported yesterday that food prices in China fell 1.9 percent in February, on an annual basis, pulling overall prices down 1.6 percent.
The news re-ignited a debate about the lagged reaction of food inflation at the consumer level in the local economy. The consumer price index for food rose more than 16 percent year-on-year in January.
Azar Jammine, chief economist at Econometrix, said he had expected consumer food inflation to have been lower already. "In January 2008 agricultural food prices were rising 25.6 percent. But by August agricultural food inflation had turned negative - in other words, prices were falling."
This January agricultural food inflation spiked again, to 13 percent, largely due to big increases in the prices of fruit and vegetables, Jammine said.
However, anomalies between producer and consumer prices remained in January.
Mike Schussler, an economist at T-Sec, highlighted some items. Grain prices fell 7.8 percent in January but the price of bread and cereal for consumers rose 28 percent. The price of oilseeds fell 18.2 percent but consumer prices for oils and fats rose nearly 31 percent.
"No matter which way you look at it consumers bear the brunt of the increases and at this time they are least able to deal with it," Schussler said.
High food prices are politically sensitive and the government is trying to work with the private sector to fix the problem.
A range of reasons has been put forward for the lagged response. Kamp suggested the long period of upward pressure from agricultural prices, from 2005 to late 2008, accounted for the delay.
Much of the blame has been laid at the door of food manufacturers, after the Competition Commission exposed cases of price fixing. However, Jammine said: "More recently, they have been least guilty. It's at the retail level that prices have been pushing up.
"Processed food inflation fell from 20.8 percent in July 2008 to only 12 percent in January 2009. For the past four months food at the manufacturing level has declined in absolute terms. The question then is why consumer food inflation is not falling more substantially."
Gilberto Baiacuana, an economist at the SA Institute of International Affairs, said demand in South Africa had not been hit as hard as in other parts of the world, where the impact of the global credit crunch had been more serious.
Andre Louw, a professor of agribusiness at the University of Pretoria, blamed persistent food inflation on a rise in demand for food as people crossed the borders into South Africa and on reduced supply because of failed land reform projects.
In some parts of the country there had been a "significant loss of production capacity, which impacts on the supply of food and can also in the longer term impact on food security".
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