South Africans will add treats to their Christmas tables if they can, but rising food prices mean many will have to adjust their menus — and there is no sign of a respite next year.
The prices of vegetable oils, palm oils and red meat are expected to continue rising in the first quarter of 2022 on the back of high import costs, stronger demand and limited supply.
This will put more strain on consumers, who already face high fuel and electricity prices as well as a lack of jobs.
Higher petrol and diesel prices, among other factors, fuelled the November inflation figures released by Stats SA this week.
Annual producer price inflation (PPI) for final manufacturing was 9,6% in November, up from 8,1% in October, which Oxford Economics Africa says is the highest annual level on record.
The main contributors to PPI included coke, petroleum, chemical, rubber and plastic products, and food, beverages and tobacco products.
Annual consumer price inflation was 5,5% in November — up from 5% in October — with the main contributors being food and non-alcoholic beverages, housing and utilities, transport and miscellaneous goods and services, Stats SA said.
Matlou Setati, executive for the food safety initiative at the Consumer Goods Council of SA, said food prices rose this year to their highest levels globally in more than a decade, according to figures from the Food and Agriculture Organisation.
The rise in prices is blamed mainly on robust demand and poor harvest in many producing countries. Disrupted global supply chains, worker shortages in some countries and rising production costs also played a part.
In SA, food prices have been affected by the impact of Covid on agricultural production as well as fuel prices, weather patterns and demand and supply.
“Our expectation is that there is unlikely to be a respite in food prices in 2022, at least in the short term, despite expected good harvests, mainly due to continued inflationary pressures driven by rising fuel prices and other input costs,” Setati said.
“Major retailers try to absorb some of these costs through efficiency in procurement and distribution, and pass on the savings to customers through competitive pricing. But overall, consumers will feel the pinch of high food prices.”
Food producers have previously warned that the rise in input costs in products such as maize, steel, palm oil and glucose is putting a strain on their businesses and they are unable to absorb all of the costs.
Our expectation is that there is unlikely to be a respite in food prices in 2022, mainly due to continued inflationary pressures driven by rising fuel prices and other input costs
Logistics companies will also likely pass on the higher costs of distribution due to the hike in petrol and diesel prices.
Economists say fuel and electricity are the greatest sources of inflationary risk as they spill over to the cost of producing and distributing goods, as well as providing services.
Sanisha Packirisamy, economist at Momentum Investments, expects food inflation of 5% in 2022 and 4.6% in 2023, compared with 6.5% in 2021.
Vegetable oils are likely to see the biggest increase given the surge in international food, fuel and fertiliser prices, she said. Apart from cooking, vegetable oil is used in the manufacture of products including soaps and perfumes, while palm oil is used in processed food.
Carmen Nel, economist and macro strategist at Matrix Fund Managers, sees overall food price hikes next year, albeit at a moderately slower pace than in 2021. She estimates that food price inflation for 2021 is 6.5%, with the cyclical peak confirmed at 7.4% in August.
“We expect food price inflation to ease slightly to 5.5% in 2022. It is very rare for the overall food basket in the CPI to post sustained deflation, where aggregate prices fall outright.”
Food prices rising faster than wages have a knock-on effect of reducing the income consumers have available to spend on other non-basic goods.
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Meat prices are also expected to increase, said Dawie Maree, head of information and marketing at FNB Agri-Business. The demand for meat remains fairly robust, he said, though “we thought consumers will be under pressure and will cut [spending] on red meat”.
Maree said the supply of meat is not strong because farmers are still rebuilding their herds after being hit by drought and are not “slaughtering as much as we expected”. He said the supply of poultry is affected by the exchange rate and import duties.
Paul Makube, senior agricultural economist at FNB Agri-Business, said beef prices have reached a historical high above R56/kg and R49/kg for class A and class C grades respectively — almost 9% and 11% higher than 2020 levels.
Lamb and mutton strengthened to more than R89/kg and R71/kg respectively, while the price of pork remained lower at R29/kg.
There has been an upswing in prices for chicken due to strong seasonal demand and the spill-over strength from the red meat market.
“The relatively tighter domestic and import supplies underpin the strength in poultry prices, which are currently at double-digit percentages above the 2020 levels for this time of the year,” Makube said.
Nel said the agriculture sector has benefited from bumper harvests, which mitigated some of the offshore price pressures, and should perform well in 2022 given favourable weather conditions and robust export demand.
Recently, however, the weaker rand exchange rate and higher input costs have led to some concern over price pass-through to the retail level.
“These could limit the extent of disinflation. At the same time, the rising base in 2021 would make it more difficult for food price inflation to accelerate very sharply in 2022, reducing the risk of double-digit food price inflation, on average,” she said.
