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SA HAS so far been lucky in that food prices haven't risen as much as feared. Some would say this just points to a mismeasurement by Statistics SA. But, whatever the case, the country won't be able to escape the effects of the longer-term upward trend in global food prices.
The April consumer price index (CPI) showed food prices actually fell by 0.1% month-on-month (m/m). This contrasts with the sharp rise in domestic food prices the previous month (1.4% m/m) as well as the fact that most developing economies are struggling with high food prices.
The main reason for the food inflation drop during April was a fall in the price of meat (0.3% m/m), fish (0.9%) and fruit (1.5%). These declines more than offset a modest rise in bread and cereal prices. On an annual basis, food inflation eased to 4.8% from 5.1%.
Many observers have in recent months argued that the CPI figures aren't a true reflection of the situation. They argue that the new weightings for the CPI basket, which came into effect in 2009, don't give enough weight to consumer spending on food.
The inflation rate is calculated as a weighted increase in prices, with the weightings arrived at from a survey of consumer spending patterns. The last survey found consumers spent 14.27% of their income on food. This was sharply down from the previous weighting of 25%.
Changing patterns
Stats SA has acknowledged that the survey of consumer spending patterns took place at a time when the economy was booming and jobs were growing, with consumers having more money to spend on items other than food. It might be an entirely different story now. For that reason, suveys are going to become more frequent to get the latest updates.
But it's difficult to envisage Stats SA adjusting the weighting for food upwards, as food prices are in a long-term upward trend. Already, it's clear that if the old weightings prevailed, overall inflation would have been much higher than the 4.2% in April.
Factors helping to keep food inflation down in SA include the maize surplus. Stanlib economist Kevin Lings says other factors such as competition in the food retail sector as well as the fragile state of the consumer are helping to keep a lid on prices.
"We still expect SA food inflation to move noticeably higher in the coming months, but the rate of increase appears relatively well contained," Lings says.
Internationally, the United Nations' Food and Agriculture Organisation food price index averaged 232 points in May 2011, down 1% from April but still 37% higher than in May 2010. Declines in international cereal and sugar prices were responsible for the slight drop in May, more than offsetting rises in meat and dairy prices with oils largely unchanged.
The index has been above 231 index points since the start of the year and hit its all-time high of 238 points in February.
The reasons for the food price spike were a range of weather-related incidents and fires, in places ranging from Russia to the US to Asia and Australia. While these are hopefully once-off factors, analysts argue that the long-term trend is for higher food prices.
Packing in the proteins
While things might not be as bad as the British aid agency Oxfam thinks, others such as the International Monetary Fund and Roubini Global Economics believe the trend is upwards.
Oxfam says food prices may rise by 70% to 90% in real terms by 2030 before taking into account the effects of climate change, which would roughly double price rises again. "The food system is pretty well bust in the world," says Oxfam CEO Barbara Stocking.
The IMF says perhaps the most important explanation for the higher trend in food prices is that consumers in emerging and developing economies are becoming richer and changing their diet as a result.
Consumers in these economies are eating more high protein foods such as meat, dairy products, edible oils, fruit and vegetables, and seafood. As people become richer, they demand more of these high protein foods, whereas their consumption of grains may grow more slowly or even decline.
This increases the demand for scarce agricultural resources – for example, more land might be devoted to cattle grazing instead of crop planting, while more crops are used for animal feed.
Adam Wolfe, writing for Roubini Global Economics, points out that China, after being a net exporter of soybeans and corn, has turned into a net importer of both. If the same happened to wheat, and China had to source 5% of its wheat consumption from international markets, it would increase its share of demand in the international market from virtually zero to 4.7% and become the sixth-largest buyer after Japan.
"This would boost global prices and exacerbate the global super cycle in commodity prices," says Wolfe.
SA has so far managed to escape the worst of the food price spike which started in the second half of last year. That won't last, and food prices will rise. In the long run, the prognosis is also not good.
One can't help hoping that Stats SA keeps the food price weighting at 14.27% to keep a lid on overall inflation. The Reserve Bank might otherwise be forced to be more aggressive in its interest rate policy.
- Fin24
The April consumer price index (CPI) showed food prices actually fell by 0.1% month-on-month (m/m). This contrasts with the sharp rise in domestic food prices the previous month (1.4% m/m) as well as the fact that most developing economies are struggling with high food prices.
The main reason for the food inflation drop during April was a fall in the price of meat (0.3% m/m), fish (0.9%) and fruit (1.5%). These declines more than offset a modest rise in bread and cereal prices. On an annual basis, food inflation eased to 4.8% from 5.1%.
Many observers have in recent months argued that the CPI figures aren't a true reflection of the situation. They argue that the new weightings for the CPI basket, which came into effect in 2009, don't give enough weight to consumer spending on food.
The inflation rate is calculated as a weighted increase in prices, with the weightings arrived at from a survey of consumer spending patterns. The last survey found consumers spent 14.27% of their income on food. This was sharply down from the previous weighting of 25%.
Changing patterns
Stats SA has acknowledged that the survey of consumer spending patterns took place at a time when the economy was booming and jobs were growing, with consumers having more money to spend on items other than food. It might be an entirely different story now. For that reason, suveys are going to become more frequent to get the latest updates.
But it's difficult to envisage Stats SA adjusting the weighting for food upwards, as food prices are in a long-term upward trend. Already, it's clear that if the old weightings prevailed, overall inflation would have been much higher than the 4.2% in April.
Factors helping to keep food inflation down in SA include the maize surplus. Stanlib economist Kevin Lings says other factors such as competition in the food retail sector as well as the fragile state of the consumer are helping to keep a lid on prices.
"We still expect SA food inflation to move noticeably higher in the coming months, but the rate of increase appears relatively well contained," Lings says.
Internationally, the United Nations' Food and Agriculture Organisation food price index averaged 232 points in May 2011, down 1% from April but still 37% higher than in May 2010. Declines in international cereal and sugar prices were responsible for the slight drop in May, more than offsetting rises in meat and dairy prices with oils largely unchanged.
The index has been above 231 index points since the start of the year and hit its all-time high of 238 points in February.
The reasons for the food price spike were a range of weather-related incidents and fires, in places ranging from Russia to the US to Asia and Australia. While these are hopefully once-off factors, analysts argue that the long-term trend is for higher food prices.
Packing in the proteins
While things might not be as bad as the British aid agency Oxfam thinks, others such as the International Monetary Fund and Roubini Global Economics believe the trend is upwards.
Oxfam says food prices may rise by 70% to 90% in real terms by 2030 before taking into account the effects of climate change, which would roughly double price rises again. "The food system is pretty well bust in the world," says Oxfam CEO Barbara Stocking.
The IMF says perhaps the most important explanation for the higher trend in food prices is that consumers in emerging and developing economies are becoming richer and changing their diet as a result.
Consumers in these economies are eating more high protein foods such as meat, dairy products, edible oils, fruit and vegetables, and seafood. As people become richer, they demand more of these high protein foods, whereas their consumption of grains may grow more slowly or even decline.
This increases the demand for scarce agricultural resources – for example, more land might be devoted to cattle grazing instead of crop planting, while more crops are used for animal feed.
Adam Wolfe, writing for Roubini Global Economics, points out that China, after being a net exporter of soybeans and corn, has turned into a net importer of both. If the same happened to wheat, and China had to source 5% of its wheat consumption from international markets, it would increase its share of demand in the international market from virtually zero to 4.7% and become the sixth-largest buyer after Japan.
"This would boost global prices and exacerbate the global super cycle in commodity prices," says Wolfe.
SA has so far managed to escape the worst of the food price spike which started in the second half of last year. That won't last, and food prices will rise. In the long run, the prognosis is also not good.
One can't help hoping that Stats SA keeps the food price weighting at 14.27% to keep a lid on overall inflation. The Reserve Bank might otherwise be forced to be more aggressive in its interest rate policy.
- Fin24
