No food price fireworks ahead - economists

FMCG SUPPLIER NEWS

IOL Business - Feb 11th, 09:11

Johannesburg - There won’t be food price fireworks this year, but the cost of locally produced fresh produce like fruit and vegetables could potentially soar because of increased labour wages, proposed electricity hikes and surging fuel prices.
 

For cash-strapped consumers, the price of bread and milk could increase only marginally over the next few months, while projections are that the sky-high price of beef could stabilise, but is unlikely to decrease.

Fresh fears were raised this week of spiralling food prices with the new minimum wage of a R105 daily for farmworkers, which unions like Agri-SA warned would cripple food production because input costs would increase.

The effect, however, is likely to be felt in fresh produce. “We don’t believe food prices are going to increase to the extent that there will be a lot of fireworks,” explained Christo Joubert, a senior researcher at the National Agricultural Marketing Council, a food price watchdog.

“In terms of food prices, what we think will happen is that your labour-intensive farm practices will come under pressure – and we’ll probably see some increases in the price of fruit and vegetables,” he said, adding that struggling farmers would now have to either mechanise or slash jobs.

“Obviously e-tolls, petrol and the proposed electricity tariffs all have an influence on the production and processing side. It’s much easier for a processor to pass on the price to the consumer, but it’s not so easy for the producer to pass on the cost to the processer.”

Stats SA figures show how the price of some foods has dramatically climbed during the past four years – notably the cost of rice, meat, oil and bread – almost doubling in this period.

But Joubert said many of the price increases were in line with food price inflation. Johann van Tonder, an economist at the Bureau for Market Research at Unisa, said South Africans were spending more on electricity now than they were on food, on average.

“The percentage of consumption expenditure for food on average in the past four years has stayed the same, meaning the average price increases for food were more or less the same in that period,” he said. “In the recent past, food prices increased faster, but before that there were some decreases as well. The food inflation has therefore stayed the same but it’s difficult to say whether this is good or bad. People are spending more on electricity. In the old basket, 1.9 percent of average consumption went to electricity but now it is about 4.2 percent. Petrol has taken a much larger portion of average household income compared with five years ago.”

Joubert added that SA had “beautiful stocks” of maize, that were relatively cheap, but if international buyers snapped up these stocks, maize prices could climb between 10 percent and 30 percent if “exports realised”.

Chicken farmers were likely to remain under pressure – with the resultant 16 percent increase in prices year on year, but milk prices remained in line with food inflation and “nothing dramatic” was expected. “I don’t think we’re going to see sparks that side. A low maize price keeps the price of milk low,” he said.

Mike Schussler, an economist, agreed and said although last year was unusual for its record food prices, consumers would be spared similar prospects this year. “I have no doubt we’ll get a bit of a reprieve in the next few months, but we’re definitely going to have some input cost increases because the cost pressures don’t go away completely,” he said.

“There are a multitude of factors that lead to price increases, like the cost of seeds and the drought that we saw in the US last year,” he said, adding that consumers would have to “cut back somewhere else” to keep up with increases in food prices.

Statistics already showed that consumers were using less fuel – up to a 5 percent reduction – because of ever-rising fuel prices.

Economist Dawie Roodt predicted price hikes of locally produced foodstuffs such as fruit and vegetables were on the cards.

“The minimum wage agreement is part of the reason, but the rest is the oil price that has gone up, fuel prices and electricity.”

He said there could also be a rise in the price of rice and wheat products because of a weakened rand that was likely to stay under pressure. “The oil price has been relatively high, surprisingly… Oil is a very important commodity and very closely related to fertiliser prices.”

Roodt added: “The price of chicken has actually come down in real terms. A decade ago, chicken was much more expensive than today in real terms – after you’ve adjusted for inflation.

“We all know prices will keep going up, but I think it will be a better year, unless there is some sort of natural thing, like the drought in the US.”

Saturday Star