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Food prices expected to spike in next six months

| Economic factors

Economists are warning consumers to brace themselves for imminent food price increases. Grocers are valiantly manning the inflation gates at stores, but can only do so much, especially as the economy battles the effects of the worst drought since 1991 and a significantly weaker rand. Staple goods are expected to bear the brunt of these price hikes.

Food inflation has spiked notably in the past six months. The latest data from Statistics SA show that the cost of food increased 9.8% in March from a year earlier.

Markets and Economic Research Centre data show that in March last year, the basic food basket cost R508.95. This year, it cost the consumer R579.61.

The rise is concerning as food makes up more than 40% of the expenses in lower-income households. Food and nonalcoholic beverages have the fourth-heaviest weighting in the consumer price index. Consumer inflation data will be released next week and forecasts are for inflation to have accelerated to 7.2% last month.

The basic food basket as compiled by the Food Price Monitoring Committee, consists of 22 items including apples, bananas, brown bread, maize meal, chicken, rice and potatoes.

Bureau for Food and Agricultural Policy MD Ferdi Meyer says South Africans spend almost 50% of their food expenditure on bread and cereals, and meat.

A key raw commodity in the production of these foods is maize. Data provider Iress says that while white maize prices have fallen from their January highs of about R5,200 a tonne, they are still 66% higher than they were a year ago. Yellow maize prices have risen 30% year on year.

"Because raw commodity prices contribute a small share of the price of final food items, cost pressures in the entire value chain must also be monitored carefully," Mr Meyer says. "Therefore, over the next six months, cost pressures in the value chain will become more apparent in final retail product prices due to increases in distribution and manufacturing costs."

The price of beef is forecast to rise 50%-60%, says Efficient Group chief economist, Dawie Roodt. Mr Roodt says beef prices will rise because the main constituent of feed is maize.

Retail Price Watch, a website that compares the prices of consumer goods stocked by major grocery retailers, calculates that food inflation has been in double digits in the past three years.

The site published a survey in which it compared the prices of a basket of 50 goods from Spar, Pick n Pay and Checkers in January 2012 and January this year.

Checkers, a Shoprite-owned brand, had the cheapest basket in January this year at R1,281.36.

The average price of the 50 goods from the retailer totalled R1,035.85 in January 2012. Spar was the most expensive, with its basket costing R1,350.69 this year. At Pick n Pay, the goods cost R1,316.02.

Pick n Pay says inflation is supply-driven because it is a result of the drought. The retailer says it tracks more than 22,000 products and tracking takes into account how consumers change their shopping behaviour based on price dynamics.

"Beef prices have been rising. So, what the consumer might do is to switch from beef to chicken.

"Customers moderate the inflation they experience by flexing," the company says.

In the year to end-February, Pick n Pay reported selling price inflation of 3.1%, below the consumer price index food inflation of 5.3%.

Approached for comment on food inflation pressures, Shoprite referred to CEO Whitey Basson’s statement released late last month.

Mr Basson said that although the drought and weak rand had "undoubtedly" pushed up food inflation, there were signs the upward pressure might be starting to ease.

Shoprite said that while SA’s official food inflation rate had risen to 9.5% in March, Shoprite’s selling price inflation for the same month was less than half that at 4.3%.

Spar could not be reached for comment. Its results for the year to end-September last year show that its internal inflation was recorded at 5.2% for that period. Official food inflation was averaging less than 5% at that time.

Tradingeconomics forecasts that by the end of the year food inflation will have climbed to 10.1%.

Standard Bank’s forecasts are more gloomy. The group expects food inflation to peak at about 12% in the second half, as high domestic maize prices feed through.

The bank expects consumer consumption to slow this year.

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