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Food prices to soar as drought bites

| Economic factors

Over the past three months, food prices have increased at eight times the rate than they did in the past year, as the drought and the weak rand caused many retailers to price items higher in a bid to protect their profit margins. The Pietermaritzburg Agency for Community Social Action (Pacsa) trac

As food inflation on 36 basic food items purchased by lower-income households in the city. The cost of its January food basket increased 9% compared to three months ago.

A 10kg bag of potatoes cost about R33 in November. It cost about R73 last month — more than double, according to Pacsa’s food price barometer.

Two heads of cabbage that cost about R16 three months ago were selling for R28.50 in January. And cooking oil was R87, about 38% more in January than in November.

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Although Pacsa’s research is only conducted in KwaZulu-Natal, food prices are increasing across SA.

The latest report from the National Agricultural Marketing Council, a state body that tracks food price trends, shows that the cost of a basic food basket increased nearly 9% in nominal terms (without accounting for inflation) from December 2014 to December last year.

While the council found that the prices of some items — including frozen chicken portions, bananas, cabbage and potatoes — have fallen year on year, this is because the effects of the drought started showing in food prices only from August and have worsened in recent months.

Last month the City of Johannesburg said its Food Resilience Programme was under threat because of the effect the drought and heat wave was having on food prices.

Last year, the city provided food parcels to almost 19,500 beneficiaries a week at a cost of R2m a month, according to Nonceba Molwele, MMC for health and social development. This year 34,200 people are being assisted at a cost of R6m a month.

The worst is far from over, according to Gwarega Mangozhe, CE of the Consumer Goods Council of SA, which represents more than 11,000 companies in retail, wholesale and the manufacture of consumer goods.

"Retailers buy in advance in order to ensure price certainty. The forward cover they take typically lasts for six to 11 months, depending on the commodity. As soon as these covers run out, we will start to see the real impact of food inflation," he says.

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MANGOZHE says this will be felt particularly on imported goods such as rice and wheat, following the rand’s 44% slump against the dollar since January last year.

Already, a leading food company has given notice to retailers to expect an 8%-10% increase in the price of their product, says Mangozhe, declining to name the company.

Food is typically one of the last expenditures households prioritise because it can be more easily controlled — unlike the cost of transport, education, electricity debt and repayments.

"The strategy that households’ use (when budgets are tight) is to reduce consumption, but we are getting to levels where South African households can’t reduce consumption any further without damaging health," says Julie Smith, research and advocacy co-ordinator at Pacsa.

Although low-income households will be the most squeezed by the acceleration in food prices, along with further pressures from rising interest rates, high indebtedness, slow wage growth and increasing costs of utilities such as electricity, middle income households will also be vulnerable.

"For every R100 in a middle income household, 77% goes towards servicing debt," says Smith. "That means there is only 22% left for food, education and transport. The middle class are really going to struggle."

The prices of margarine, frozen chicken portions and tomatoes has come down (in nominal terms) over the past three months, according to Pacsa’s food barometer.

More recently meat lovers paid a little less for beef and lamb, a consequence of farmers slaughtering some of their herds in a bid to deplete stock in an over-supplied market. But the relief may only be temporary, with the price of yellow maize, the staple food fed to animals, encroaching to new records of more than R4,000/tonne.

"As soon as farmers start restocking their herd (in the next four months or so), expect beef prices to shoot through the roof," Mangozhe warns. And the price of chicken, adds Smith. "Expect substantial increases in chicken this year."

 

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