There's (Always) Money In Food
Finweek English|16 September 2021
Food prices are accelerating in South Africa and across the planet. finweek looks at SA’s listed food producer sector to gauge how they’re performing amid rising food prices.
Jaco Visser

People must eat. Considering Maslow’s hierarchy of human needs, food, water, warmth, rest, security and safety are the basic needs of humans that require fulfilment. Money is ordinarily made when a need and a solution meet each other and the acquiring party values the solution enough to transfer cash for it.

Food, as opposed to water, is not a public good in SA and is produced according to market principles. It is a big industry. In terms of Stats SA’s basket to measure the consumer price index, food is the second-largest component after housing (another base need), comprising 15.48%.

And food prices have been accelerating locally. In December last year, the rate at which food prices (at the consumer level) increased reached double the speed of headline inflation, 6.2% compared with 3.1%. Since March this year, consumer-level food price inflation has remained above 6% annually (see graph 1). Worryingly, food price inflation at the farm gate has remained elevated above 6% per year since October last year.

Global grain scenario

So, why are food prices accelerating? Grains, which form the bulk of world food production, can explain this the best. World grain stocks (which includes wheat, coarse grains and rice) has been in decline for three years in a row with a moderate increase of 0.3% forecast for 2021/2022, according to the UN’s Food and Agriculture Organization (FAO). The world is forecast to produce 785.8m tonnes of wheat in 2021/2022 (or an increase of 1.4% from the previous marketing year), 1.516bn tonnes of coarse grains (which include maize, barley and sorghum and indicates a 2.5% production increase), and 519m tonnes of rice (1% increase), according to the FAO’s Food Outlook published in June.

When we turn to grain prices, the squeeze in carryover stocks is obvious. Wheat futures for September as traded on the Chicago Board of Trade have surged to around $280 per tonne in May. A year earlier, it was trading at $185 per tonne, according to the FAO. The IGC Wheat Price Index – which is trade-weighted and measures major export quotations for the grain – was 28.5% higher in May than a year before.

Maize also saw a strong rebound with international prices reaching its highest point in February 2021 since June 2013, according to the FAO. Chinese imports of maize (which is primarily used as an animal feed) jumped 182% year-on-year in 2020/2021, accounting for all the increased trade in maize, the FAO says. By May 2021, the price of US maize was around 111% higher than a year earlier, the FAO says.

Local grain scenario

Locally, SA’s Crop Estimates Committee (CEC) forecast a maize harvest of 16.4m tonnes – the second-largest since records started – for the 2021 marketing year. This compares to a total harvest of 15.3m tonnes during the 2020 marketing year, according to the CEC.

Despite the expected bumper harvest for the current year, the price of maize, as traded on Safex, is trading at roughly R1 000 per tonne higher than a year ago. This price refers to yellow maize for delivery in December in both comparable years (see graph 2).

Meat production globally and locally

World meat production is estimated to expand from 337.2m tonnes (carcass weight equivalent) in 2019 to 345.6m tonnes this year. Between 2020 and this year, production is estimated to increase by 2.2%, primarily driven by a 4.2% surge in pig meat production. This reflects “an anticipated rebound in meat production in China, with notable expansions in Brazil, Vietnam, the US and the European Union, partially offset by likely contractions in Australia, the Philippines and Argentina”, according to the FAO. “The anticipated meat production growth in China reflects likely output expansions across all meat types, especially pig meat, driven by large investments in enhancing meat value chains and biosafety.”

Global meat prices have, nevertheless, not risen as robustly as grains. For the period January to May this year, compared with the same five months last year, the FAO Meat Price Index rose only 1.3%. “International meat prices rose from January to May, reflecting solid import demand, especially from East Asia and the Middle East, amid limited expansion in global export supplies despite recovering production in key producing regions.”

Locally, meat prices have surged. The average price of mutton (A2/A3 grade) breached the R100/kg level for the first time during the second week of July to trade at R100.17/kg. By the last week of August, the price retreated to R91.60/kg, making it the 14th consecutive week of trading above R90/kg, according to data compiled by Absa.

Similarly, the price of beef (A2/A3 grade) was 17.2% dearer during the final week of August compared with the same week a year ago, Absa data shows. This grade of meat traded at R51.60/kg after reaching its highest price of R54.41/kg in February, data from Absa shows.

Local food price inflation

The Bureau for Food and Agricultural Policy (BFAP) compiles an alternative food inflation basket, called the BFAP Thrifty Health Food Basket, which “measures the cost of basic healthy eating for low-income households in the SA context”, according to the bureau. The BFAP basket “is designed to feed a reference family of four (consisting of an adult male, an adult female, an older child, and a younger child)” monthly where the parents both receive the minimum wage (R4 229.55 per month for a 195-hour working month), child grants (R460 per month) and the children benefit from a school feeding programme.

During July, the cost of BFAP’s basket rose 4.2% from a year earlier, or by R119, to R2 392 per month. The bureau noted that several constituents’ prices rose by more than 10% on a yearly basis, including plant oils, pork (chops and ribs), margarine, dried beans, beef (stew and offal), chicken (IQF and fresh cuts), super maize meal, pumpkins and bananas. Products which saw a jump in prices of between 6.7% and 10% included chicken giblets, canned pilchards, white sugar, polony, cabbage and beef (mince and brisket).

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