Buyers in South Africa should expect the upward trend in food prices to continue in the coming months, as rapidly rising farm producer price inflation could fuel the costs of food production. higher production for consumers.
John van Tubbergh, head of the consumer, food and agribusiness sector at financial services company RMB, said a number of major food manufacturers recently cited soaring prices major agricultural products – used as inputs in the manufacture of basic consumer goods – a real threat to margins.
“(This) poses a conundrum for food manufacturers about whether to absorb these cost increases or try to pass them on to financially constrained consumers, stoking inflation concerns,” he said. -he declares.
Agricultural producer price inflation accelerated to 12.3% year-on-year in November 2020, before settling at a still high 7.2% in March 2021. Inflation rates for cereals and others crops, as well as dairy products, are respectively 17.2% and 12.6% – while the producer price inflation of live animals and animal products is 9.8%.
Combined, grains, dairy and animal products make up nearly 60% of the farm gate price basket, van Tubbergh said, adding that farm-level price pressures are also starting to drive up manufacturing costs. .
“From moderate levels of around 4% last year, producer food price inflation fell from 6.9% year-on-year in February to 8.1% in March. This rate now far exceeds the food price inflation of the CPI, which means that the gross margins of food manufacturers are reduced.
“In a still weak economy with households under financial pressure, this leaves food manufacturers with tough decisions to make,” he said.
Food manufacturers have already responded to rising production costs by reducing internal costs and optimizing processes to help reduce pressure on margins, van Tubbergh said.
The dynamics of working from home have also given food manufacturers some leeway – with increased food demand giving manufacturers space to raise selling prices.
“But even so, it will be difficult for them to keep raising prices as much as they want,” he said.
Simply increasing prices may not be the answer, however, as consumers are extremely sensitive to price increases these days – something manufacturers will keep in mind.
Consumers have faced many financial challenges, including higher fuel prices, higher municipal rates and taxes, and many have had to accept zero pay increases or pay cuts due to Covid lockdowns -19.
Food prices have already risen significantly over the past year, with several industry reports pointing to food inflation well above the CPI.
- For South Africa in general – South Africa’s Consumer Price Index statistics for February 2021 show that inflation on food and non-alcoholic beverages is 5.2%
- In urban areas – the Food Price Monitor of the National Agricultural Marketing Council shows that inflation on their basic urban food basket is 9.8%
- For poor households – PMBEJD data from the Pietermaritzburg Household Accessibility Index, annualized for March 2021, shows that household food basket inflation is 12.6%
The PMBEJD in particular has warned consumers to expect food prices to rise even further, possibly by 10% for the year.
Indeed, recent fuel price hikes and a series of electricity price hikes through July are impacting the entire economy and along the food value chain. And even when those prices drop slightly – as in the case of fuel prices in May – these savings are rarely passed on to consumers.
“The full impact of these increases is yet to be seen. Based on the current upward trend in food prices, we predict that with increased fuel and electricity, food prices will increase beyond 10% for the term 2021 ”, did he declare.
Read: Food Prices Rise In South Africa In April – Here’s What You Pay More For