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National Agricultural Marketing Council's Quarterly Food Price Monitor - February 2009
February 2009
National Agricultural Marketing Council


Executive Summary

The new CPI index was released in February 2009. A new Headline Inflation measure (the CPI for all urban areas) would be the inflation target measure in future. The new base period is set to 2008, whereas the previous base period was 2000. The weight for food and non-alcoholic beverages in the new CPI basket is smaller, i.e. it was reduced from 22.09 to 15.68 in the new basket.

According to Stats SA, the lower weight does not mean that South Africans are spending less money on food, but rather it reflects higher income levels, which resulted in more money being spent on other goods.

The year-on-year (i.e. January 2008 to January 2009) increase in the CPI for Food was 16.1 %, which is 1.0 percentage point lower than the figure released in December 2008 (17.1 %). The overall CPI reflects a year-on-year increase of 8.1 %, which is 1.4 percentage point lower than the 9.5 % recorded for December 2008.

The year-on-year increase in the price of maize products was 8.59 %, which is higher that 7.62 % reported in the November Food Price Monitor (FPM) press release. Between July 2008 and January 2009, maize products experienced a 9.53 % average increase in price. Between January 2008 and January 2009 the maize commodity price increased by 1.20 %, while between July 2008 and January 2009 it decreased by 7.66 %.

Wheat products experienced average year-on-year price increases of 29.51 %, which is lower than the 37.89 % reported in the November 2008 FPM. The wheat price declined by 30.81 % between July 2008 and January 2009. The year-on–year decline in the wheat price was 13.37 %.

Sunflower product prices increased, on average, by 43.60 %, which is lower than 60.55 % reported in the November 2008 FPM. The price of sunflower declined by 22.89 % between July 2008 and January 2009. The year-on–year decline in the price of this commodity was 12.29 %.

Dairy product prices decreased, on average, by 0.46 %. Between July 2008 and January 2009, the prices of dairy products decreased, on average, by 0.05 %.

Fresh meat prices increased, on average, by 7.88 % between January 2008 and January 2009. This is 4.91 percentage points lower than the corresponding rates reported in November 2008 FPM. On the other hand, the rate of increase in the price of the processed meat accelerated to 23.40 % during the same period.

The year-on-year price increase for fresh vegetables was at 78.54 %, which is significantly higher than the 10.63 % released in November 2008 FPM. The prices of processed vegetables increased by 18.32 %, year-on-year, which is higher that 16.44 % reported in November 2008 FPM. Between July 2008 and January 2009 these products experienced an average price increase of 3.48 %.

In January 2008 people living in rural areas had to pay, on average, R3.75 more for a 5kg bag of maize meal than people in the urban areas. This increased further to R5.42 in January 2009. Consumers in rural areas paid R9.45 more than consumers in urban areas for the products shown in Table 4 in January 2008. This declined to R8.03 in July 2008, but increased again to R9.75 in January 2009.

A pilot study conducted by the NAMC in the Limpopo Province indicated that the difference between urban and rural food prices can largely be attributed to the following: (i) cost of transport and maintenance of vehicles; (ii) inability to attract significant discounts from wholesalers/processors due to the low volumes sourced; (iii) stock losses due to spoilage, breakage, products exceeding their expiry dates and stock theft and (iv) casual labour associated with loading.
  • Global commodity trends

    Between January 2008 and January 2009 international maize and wheat prices decreased by 13.18 % and 31.94 %, respectively. In contrast, the January 2009 rice price was 57.66 % higher than in January 2008.

    Currently prices of skim milk and whole milk powder are at similar levels than in 2006 after significant increases in 2007/08. Similar trends were observed for sunflower seeds.

    Between November 2007 and November 2008 the price of bovine meat increased by 14.33 %. The price of pig meat increased by 17.77 % between October 2007 and October 2008. The price of poultry meat has increased by 21.99 % year-on-year ending October 2008.


  • Transport cost

    The cost of transport, particularly road transport, is a more complex matter than generally perceived. There are only four major cost drivers that make up the majority of vehicle owning and operating costs, namely depreciation, cost of capital, fuel and maintenance (including tyres). These four cost drivers account for anything between 60 and 85 % of vehicle operating costs, depending on the nature of the operation and the size and type of vehicle. Attention must also be paid to less well-known yet frequently unidentified factors that determine the levels of transport efficiency vehicle owners and operators deliver upon, namely traffic congestion, waiting time at container terminals and yards an loading and unloading at manufacturing plants, distribution centres and retail outlets and working hours. When factors such as those mentioned above are taken into account, the majority of vehicles operate at less than 60 % of their potential efficiency in the case of long haul vehicles; in the case of many secondary distribution vehicles, they operate at less than 20 % due to short distances, small payloads and ongoing delays.

    Toll fees payable for class 3 vehicles (i.e. vehicles with 3 and 4 axles) on the major corridor routes to the Tswane Fresh Produce Market from 2006 to 2009 increased between 14.4 % and 22.8 %. Toll fees payable for class 4 vehicles (i.e. vehicles with 5 or more axles) on the major corridor routes to the Tswane Fresh Produce Market from 2006 to 2009 increased between 14.4 % and 22.8 %.

    When looking at grain transport, the percentage of grains transported by rail declined from just over 80 % in 1985 to around 30 % in 2008, while the percentage of grains transported by road increase from just below 20 % in 1985 to around 70 % in 2008. Concerning is that of the 12 993 rail trucks ordered from January 08 to March 08 only 5 703 rail trucks were placed, which constitutes a 44 % on rail trucks ordered.


  • Outlook

    Poor economic growth worldwide continues to hamper further improvement in commodity prices, and only when information regarding possible negative supply side shocks enters the market (that could reduce stock levels significantly) do world prices respond positively. The fading import demand of China will put pressure on prices, while at the same time the drought conditions in Argentina and Brazil provide price support. Low world energy prices also do not provide a breather for profit margins in the biofuel industry.

    It is unlikely that maize prices in South Africa will move as low as deep-sea export parity in the current season, mainly because of the sharp increase in white maize consumption in the human market. Lower chop prices will bring welcome relief in the feedlot industry. Livestock commodity prices are expected to remain firm over the outlook period as a result of public holidays and the positive impact of lower interest rates and fuel prices on consumer buying power. With lower input costs and a positive supply response by farmers a correction in the vegetable market can be expected, but over a shortterm outlook (three months), these corrections can be expected to be marginal.

    Finally, within the context of food security in the SADC region cognisance should be taken that current economic conditions and agricultural potential, combined with socio-economic problems in Zimbabwe, will provide a significant challenges to ensure household food security within the region. This situation could potentially prolong the cycle of high food prices in South Africa as these countries also depend on South Africa for the supply of many food stuffs.

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