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Food inflation in shock rise to 8.7%

| Economic factors

Food prices in South Africa rose by an average of 8.7 percent between December 2014 and December 2015 and neighbouring Lesotho yesterday declared a national emergency as the drought continued to hit farming communities across the southern African region.

The food basket survey released yesterday by the Markets and Economic Research Centre (MERC) showed that prices have exceeded the inflation rates of the consumer price index (CPI).

The food basket consists of, among other things: basics such as meat, margarine, baked beans, chicken portions and vegetables. The survey said the most affected items were basic food products that the poorest of the poor required for their sustenance and nutrition.

During the period, fats and oils rose by 15,8 percent, bean products by 1.5 percent, dairy and eggs by 8.6 percent, vegetables by 11.2 percent, coffee and tea by 5.3 percent) and bread and cereals by 9.5 percent.

Shrinking output

Horticultural knowledge group Hortgo said yesterday that the Western Cape fruit industry losses came to R720 million in 2015 as a result of a shrinking output due to the drought.

Agri SA economist Wandile Sihlobo said the food price increases “put a challenge on the affordability of food” and would make it difficult for poor people especially to afford food.

“Even though maize prices continued to increase, consumption would not drastically change in the basic foods category and demand would be maintained even in the face of decreased spend,” Sihlobo said.

“Commodity prices are likely to remain at high levels because of shortages,” he said,

In December, Statistics SA said the headline CPI indicated that food and non-alcoholic beverage prices had increased by 5.2 percent and 5.9 percent respectively, compared with the 4.8 percent a month earlier for both indices.

On Tuesday, the World Bank said the country’s agricultural production had contracted at double-digit rates in the first three quarters of 2015 as extreme weather conditions related to El Niño led to the most severe drought in almost 20 years, pushing an estimated 50 000 South Africans into poverty.

The drought, the worst in more than 20 years, has pushed most productive farms in the key agricultural provinces of Mpumalanga, Free State and North West into despair and forced farmers there to cut back on jobs.

A consumer economist who spoke to us on condition of anonymity said the drought had affected overall food production in South Africa and charged that the drop in production would be felt more by the poorest of the poor who relied mainly on maize as their staple food.

Exceeded inflation

The economist said the MERC survey showed that the basket of food had exceeded the SA Reserve Bank’s inflation upper band of 6 percent.

“It would be interesting to see what the Reserve Bank’s next inflation target would be, given that the runaway food prices have put more pressure on its forecast,” the economist said.

The MERC said the cost of the basic food basket increased by about by about R44 in nominal terms from R503 to R547 between December 2014 and December 2015.

It identified animal protein foods as well as bread and cereals as the key drivers of the increase.

“The price of the food basket is already beyond most people’s reach and it would lead to more people falling into the poverty bracket as the affordability would become more stiff,” Sihlobo said.

He said the drought had impacted on production locally, which had pushed up food inflation, and as a result South Africa was forced to import commodities on a weak currency to supplement domestic demand.

Another economist said the situation would be made more difficult by the declining rand against most major currencies.

“Remember, this is just a survey, and the picture could be much different in poor communities and this would make it more difficult for the government to subsidise the poor through social grants as it also does not have any money,” he said.

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