Agricultural production is key driver in slowing food producer inflation
By Bekezela Phakathi - Mar 31st 2017, 16:07
The broad recovery in agricultural production is the key driver of the slowing trend in food producer inflation, says the Agriculture Business Chamber (Agbiz), an organisation that represents commercial farmers and agribusiness enterprises nationally.
Food producers are seeing an easing of price pressures due to relatively low agricultural commodity prices. Data released on Thursday shows that SA’s food producer price inflation slowed to 9% year on year in February 2017 from 10.6% in January 2017.
Agbiz said this could be transmitted to the consumer over the coming months, as it expects a lag before it can be reflected in the Consumer Price Index (CPI) data.
SA is set to harvest record supplies for crops such as maize and soybeans. Total maize production is estimated at 14.3-million tonnes, which is the second-biggest crop on record since the 1980-81 season. Soybeans are set to be the biggest on record, estimated at 1.2-million tonnes.
"The benefits of this recovery are already reflected in agricultural commodity prices," said Wandile Sihlobo, head of economic and agribusiness research at Agbiz. "White maize spot price currently trades at levels around R1,957 a tonne, which is 60% lower than the same period last year. Yellow maize spot price is trading at levels around R2,011 a tonne, which is 40% lower than the same period last year. Soybean spot price is at a level around R4,935 a tonne, which is an 18% annual decline. Sunflower seed spot price is trading around R4,532 a tonne, down by 34% from a corresponding period last year," he said.
While Agbiz expects the overall food producer inflation to decelerate further over the coming months on the back of large supplies, dairy products and meat inflation could remain at fairly higher levels. The South African Milk Processors’ Organisation’s milk purchasing index fell 7% in February 2017 to 112.23 points — suggesting that the manufacturers bought relatively less milk.
"Moreover, as the winter season approaches, milk production could decline in line with seasonal trends and subsequently support prices," said Sihlobo. "The meat inflation could remain fairly high due to slowing slaughtering activity. In January 2017, South African farmers slaughtered 227,483 head of cattle, which is 28% lower than the previous month."
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