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Good news: food inflation could remain relatively low

Jul 29 2017 09:00

Cape Town - The annual food producer price inflation decelerated to 4.7% year-on-year (y/y) in June 2017, from 5.7% y/y in May 2017.

According to Wandile Sihlobo, economist at the Agricultural Business Chamber (Agbiz), this shows the benefits of the higher agricultural output this year following good summer rainfall across the country.

"The large agricultural output will keep agricultural commodity prices under pressure over the short to medium term. This essentially means that food inflation also could remain at relatively lower levels," he said in the latest Agbiz newsletter.

"With that said, the recent outbreak of avian influenza in the poultry sector remains a risk. The virus has been reported on isolated farms in Mpumalanga, the Free State and Gauteng. We will closely monitor the developments within the poultry industry in order to ascertain the impact on food inflation in the coming months."

Sihlobo said the deceleration in food producer price inflation in June was largely in grain, sugar, dairy, starches, and vegetable and fruit products. Meanwhile, meat and meat products accelerated due to the ongoing cattle herd restocking process resulting from the 2015/16 drought, as well as low base factors.

"The general deceleration in food producer inflation is due to the recovery in agricultural production. The total production of summer grains and oilseeds is estimated at 18.44 million tonnes, which is a 96% annual increase," he said.

READ: INFOGRAPHIC: How food prices spiked in the last year

"This has led to a widespread decline in agricultural commodity prices. The white maize spot price currently trades at levels of around R1 768 per tonne, which is 59% lower than the same period last year. The yellow maize spot price is trading at levels of around R1 889/tonne, which is 42% lower than the same period last year."

The soybean spot price is at a level of around R4 711/tonne, a 31% annual decline. Sihlobo is of the view that the decline in yellow maize and soybean prices will also benefit other sectors, such as livestock and poultry.

"While meat price inflation increased at the fastest pace of 17% y/y, there seems to be some level of improvement in slaughtering which could lift meat supply. The most recent data from the red meat levy shows that farmers slaughtered 202 886 head of cattle in May 2017, up by 5% from the previous month," said Sihlobo.

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