Your breakfast is about to get cheaper in South Africa
Since the beginning of the year, frying up a hearty breakfast or visiting your favourite coffee spot for a meal has been harsh on South Africans as food prices skyrocketed. However, good news is on the horizon, which has already started to filter through.
While there has been an improvement lately, the past few months have been very tough, and there is a deeper story behind the volatility in prices of staple foods in South Africa.
According to Paul Makube, Senior Agricultural Economist at FNB, understanding the various price drivers sheds light on the challenges farmers face and the extent to which the global economic landscape impacts essential food items, such as milk, eggs, meat, bread and grains.
Drivers behind the price of your breakfast
Makube noted that over the past 15 years, South Africa has witnessed a significant decline in the number of dairy farms, leaving only around 1,000 remaining.
“While this hasn’t significantly reduced milk production, various other factors have contributed to the steadily increasing price of fresh milk that we have all noticed in our weekly grocery shopping outings,” he said.
The most significant external pressures have been rising input costs like feeds and fertilisers, essential to providing quality grazing for pasture-fed cows.
Adding to the challenges for local dairy farmers has been the fact that imports of UHT (long-life) milk have soared, driven mainly by supermarkets. UHT milk’s lower cost than fresh milk has intensified competition and put pressure on dairy producers.
“Historically, cheese and powdered milk production helped supplement dairy farmers’ incomes, but with the decreasing milk availability, these secondary industries have also been impacted,” said Makube.
“Consequently, the milk, eggs and cheese consumer price subindex remained elevated at a double-digit level of 14.4% year-on-year (y/y) in July 2023 although having accelerated from 1.4% in June to 0.9% month-on-month (m/m) in July.
“In the fresh category, the full cream and low-fat milk were up by 10.7% and 17.9% y/y, respectively. The long-life full cream and low-fat milk were up by 13.9% and 11.6% y/y, respectively,” he added.
In recent months, enjoying the luxury of a three-egg omelette or a couple of over-easy eggs to accompany your morning toast has been a lot more costly.
“The price of eggs has risen steadily since the beginning of the year. Once again, the main culprit for this has been increasing input costs, particularly in the form of more expensive feed for the chickens,” said Makube.
“Periodic outbreaks of avian influenza have also forced farmers to cull significant portions of their laying stock, reducing the overall supply and pushing prices higher,” he added.
However, Makube noted that the situation improved following the decline in grain prices, a proxy for feed that helped reopen profit margins for producers. Additionally, constrained consumer disposable incomes negatively impacted demand, which saw a half-dozen and the 18-egg package price falling by 2.5% and 10% y/y, respectively.
Pork production in South Africa saw growth of over 9% in 2022. However, despite the increased production, pork producers still faced significant profit pressure due to high feed prices.
“As a net importer of pork, South Africa is also affected by international industry trends. So, the recent increase in the price of European pork due to declining availability, high input costs, and uncertainty surrounding new animal welfare standards pushed up the prices of your pork sausages and favourite cuts of bacon,” said Makube.
According to the latest inflation data, the bacon and ham prices increased by 10.7% and 8.8% y/y in July 2023, respectively.
Grains and cereals
In 2022 and early 2023, grain and cereal prices continued to inflate despite record-breaking summer grain yields.
“This was largely influenced by hot and dry conditions in large parts of the Northern Hemisphere, leading to global price dynamics,” noted Makube.
The weakening exchange rate of the rand, coupled with fears of a global economic slowdown, increased incidences of load shedding, and rising global interest rates, also worked together to add to the inflationary pressure on these staple food items.
Oils and fats
The price of oils and fats rose by almost 40% in 2022, primarily driven by similar factors affecting grains.
However, South Africa has seen a deceleration since early 2023 and a further decline in the past three months to July due to the improved availability of products and the spillover weakness from the international market, said Makube.
The oils and fats subindex was negative for the third consecutive month at -12.9% y/y in July from -9.5% and -2.4% y/y in June and May 2023, respectively.
The good news
Fortunately, when it comes to the price of your breakfast, it’s not all doom and gloom.
In fact, Makube noted that several trends are pointing toward prices of these and other food staples normalising and possibly even reducing in the coming months.
Typically, the production trends and prices of grains take a few months to filter through to retailers, so he said consumers can hope to see lower prices for flour, bread, and cereal.
The positive impact of the high yields should filter through to your local supermarket in the coming months as well. The global prices of fertilisers and other key farming inputs have been gradually declining, and those savings should also be passed on to consumers, Makube added.
And when you add to these factors the more positive outlook for inflation, load-shedding, and the exchange rate, it seems likely that the upward pressure on prices evident in recent months will ease going forward.
So, all things being equal, and assuming there are no further economic shocks in the second half of 2023, there’s a good chance that a Sunday morning fry-up might cost you a little less this coming summer.