Food Price Review

1
Food Price Review
2
Presentation outline

• Background on NAMCs role in food price
  monitoring
• International Trends
• Local Trends
• Long term trends (CPIX CPI Food)
• Short term
• Factor impacting on food prices locally
• Short-term outlook

3
Background
4
NAMCs involvement in food price monitoring

• Food price crisis of 2002
• Minister of agriculture appointed a Committee
  (FPMC) to present a report by end of 2003
• FPMC findings
• No foul play behind price rises
• Main factors exchange rate, prices of raw
  materials
• FPMC recommendations
• NAMC should implement a system of food price
  monitoring to help DoA, etc. make informed
  policy decisions/interventions

5
Implementation of FPMC recommendations

• NAMC set up a system of food price monitoring to
  track and report on food price trends in South
  Africa and
• To provide explanations on the observed trends
  and advise DoA on possible actions
• Urban Food Price Monitoring
• From 2004, retail food price data from urban
  areas was sourced from AC Nielsen (basket of 75
  food items)
• From this data, since 2004
• 1 Annual Food Cost Review per year
• 4 Quarterly Price Trends reports per year

6
Implementation of FPMC recommendations

• Rural Food Price Monitoring
• In November 2006, collection in the rural areas
  commenced
• Data collected by provincial department of
  agriculture (PDA) officials from all nine
  provinces

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Implementation of FPMC recommendations

• Scope Rural Food Price Monitoring

Province Number of outlets Number of price collectors
Western Cape 19 12
Free State 28 10
Mpumalanga 23 9
Gauteng 13 6
North West 23 6
Eastern Cape 18 7
KwaZulu-Natal 27 15
Northern Cape 17 5
Limpopo 21 23
Total 189 93
8
Implementation of FPMC recommendations

• Training Rural Food Price Monitoring Price
  collection procedures
• Two national training sessions
• Several training visits to provinces (see Table
  below)

Province Number of training visits
Western Cape 3
Free State 2
Mpumalanga 3
Gauteng 0
North West 3
Eastern Cape 2
KwaZulu-Natal 2
Northern Cape 2
Limpopo 1
Total 18
9
Ongoing Developments

• Developing good working relations with Statistics
  SA to ensure consistent data releases to the
  public
• NAMC staff seconded to Statistics SA
• NAMC regularly assist Statistics SA with selected
  tasks
• Implementation of Input Cost Monitor
• Provides a view of the other side of the value
  chain
• To date Grain and Fruit Input
• Cost Monitor reports were published

10
International Trends
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• Wall Street Journal Higher Food Prices to Hit
  Europe
• The global rise in food prices is catching up
  with continental Europe, adding to mounting
  inflation worries Rising global food demand,
  freakish weather and the trend to reroute crops
  for biofuels are pushing up food-commodity prices
  globally
• Standard Poor's GSCI Excess Return Index, which
  measures the price movements of eight agriculture
  commodities -- including wheat, sugar and corn --
  is up 10 in the past year.
• China Daily - Price rises take a toll in Shanghai
  
• The average price of pork at the citys markets
  has increased 25 percent
• Prices of fish and chicken have also increased
  10 to 15 percent from the year before.

12

• China (continue)
• Consumer prices for food were up 15.4 percent in
  July from a year ago (International Herald
  Tribune)
• Financial Post Get ready for food-price spike
• The U.S. producer price index for raw food and
  feedstuffs was up 19 or more year-over-year from
  February to June
• topping 30 in May for the first time since 1974.
  
• The Economist Intelligence Unit forecast the
  price of grains and oilseeds will rise 16 and
  29, respectively, this year.

13
Food prices in Bangladesh and India
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Reasons for international trends

• Global shortage of grains (low stocks, drought in
  major producing areas, high input costs and
  biofuels)
• Changing diets, particularly of Chinese and
  Indians
• E.g. the number of urban Chinese households
  qualifying as middle class rose to 42 million in
  2005 from 7.6 million in 1995
• Will hit 199 million in 2015 (McKinsey Quarterly)
  
• Global meat and milk consumption is up more than
  3 and 2, respectively, on average over the past
  three years. (USDA)
• More affluent consumers in developing countries
• Diseases in livestock

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Domestic Trends
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General Food Inflation Trends (Jan 1991 to Sep
2006)
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Food Price Review Grain products
18
Food Price Review Veg, Fruit Nuts
19
Food Price Review Sugar, cofee, tea cocoa
20
Food Price Review Processed and unprocessed
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Relationship between food price inflation in
rural and urban areas
January 2004 January 2004 January 2005 January 2005 January 2006 January 2006 January 2007 January 2007
Urban Rural Urban Rural Urban Rural Urban Rural
CPI-food 135.4 139.1 137.2 139.7 142.9 143.7 155.4 156.2
Inflation Total Food 2.73 -0.57 1.33 0.43 4.15 2.86 7.92 8.00
Inflation Grain Prod -0.61 -10.48 1.61 -2.69 -0.23 -1.74 7.04 9.67
22
CPI Food for rural and metropolitan areas
January 2002 December 2006
23
CPI grains products for rural and metropolitan
areas January 2002 December 2006
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CPI dairy and eggs products for rural and
metropolitan areas January 2002 December 2006
25
CPI vegetable for rural and metropolitan areas
January 2002 December 2006
26
General Food Inflation Trends(Oct 2006 to July
2007)
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Short term food price monitoring
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Products monitored by NAMC

• Basket of 75 products from urban areas (since
  2004)
• Since November 2006, food price monitoring in
  rural areas commenced
• 26 food products
• 180 rural outlets throughout all 9 provinces

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Latest NAMC food price trends(July 2006 July
2007)

• Retail food prices increased by 13.76 on average

white bread (12.89) brown bread (8.39) maize meal super (22.01), maize meal sifted (20.39) fresh milk 2L full cream (26.345) fresh milk 2L low fat (26.12) long-life full cream (29.31) streaky bacon (14.13) brisket beef (18.91) pork chops (46.54) lamb chops (15.38) beef mince (14.48) beef stewing (7.61) frozen chicken (30.18) fresh whole chicken (23.91)
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Latest NAMC urban food price trends(July 2006
July 2007)

• Some items whose prices decreased (urban)
• Eggs (-4.14)
• Tomatoes (-4.47)
• Hubbard squash (-9.95)
• Bananas (-20.23)
• (due to normal seasonal fluctuations)

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Latest NAMC rural food price trends(Jan 2007
July 2007)

• Prices observed for only 16 products (some with
  two or more sizes)

Brown bread loaf 600g (6.37) Maize meal 1kg (8.31) Maize meal 2.5kg (15.00) Maize meal 12.5kg (24.11) Maize meal 5kg (13.84) Samp 1kg (14.84) Samp 2.5kg (7.61) Full cream long life milk1l (20.00) Full cream long life milk 500ml (7.78) Rice 1kg (8.63) Rice 500g (6.48)
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Latest NAMC rural food price trends(Jan 2007
July 2007)

• Some decreases in the rural areas
• Margarine 125g (-1.70)
• Beans 410g (-0.86)
• Sugar 2.5kg (-0.34)
• Rice 2kg (-9.28)

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Urban-rural comparison
Product Size Urban prices Urban prices Urban prices Urban prices Rural prices Rural prices Rural prices Rural prices Urban price change Rural price change
Jan-07 Mar-07 May-07 Jul-07 Jan-07 Mar-07 May-07 Jul-07 Jan 07 to Jul 2007 Jan 07 to Jul 2007
Loaf of brown bread 700g 4.44 4.68 4.67 4.65 4.62 4.60 4.74 4.82 4.71 4.29
Loaf of white bread 700g 4.70 5.18 5.24 5.31 5.10 5.19 5.47 5.39 13.08 5.71
Maize meal 1 5kg 15.47 16.44 18.92 19.22 21.40 21.6 22.79 24.36 24.20 13.84
Cooking oil 750ml 7.30 7.11 7.49 8.02 8.38 8.51 8.51 8.82 9.86 5.26
Block type margarine 500g 7.97 7.97 8.68 8.44 8.01 8.04 7.98 8.56 5.83 6.91
Full cream long life milk 1l 6.48 6.71 6.95 8.01 6.85 7.14 7.47 8.22 23.61 20.00
Pilchards in tomato sauce 425g 7.58 7.50 7.68 8.01 8.91 8.92 9.35 9.64 5.64 8.15
Peanut butter 410g 9.73 10.02 10.40 10.88 11.22 11.7 12.11 11.91 11.80 6.14
Sugar 2.5kg 13.88 13.64 13.50 13.78 16.28 16.4 16.43 16.51 -0.75 1.39
Average 10.89 7.97

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Factors impacting on food prices locally
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Different factors

• Price movements internationally
• International agricultural policies
• Monetary policy
• Demand factors

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Price movements Oil prices
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Price movements World cereal prices
38
Price movements Maize
CIF costs must still be added to CBOT price
39
Price movements Meat prices
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Price movements Dairy prices
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Agricultural policies
Source OECD database 2005
42
Monetary policy

• A long-run relationship between South African
  agricultural and industrial prices, the exchange
  rate and money supply.
• This implies that changes to macroeconomic
  variables find their way into the agricultural
  sector.
• Agricultural prices adjust faster than industrial
  prices to innovations in money supply
• Agricultural prices overshoot their long-run
  values in the short run.
• When monetary shock occurs then
• Increased volatility and uncertainty in prices

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Monetary policy
Source SARB, 2007
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Demand side

• Increasing population
• Impact of immigration and not knowing how many
  additional people are in the country
• Increasing incomes
• Including basic income grants
• Changing consumer pattern
• Healthier lifestyles

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Looking ahead in the short-term

• Maize wheat prices expected to remain high
  leading to high maize meal bread prices
• Beef lamb prices expected to remain high
• Dairy products are expected to remain relatively
  high

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Wheat to Bread Value Chain

• NAMC under the instruction of the Minister of
  agriculture established a Section 7 committee to
  investigate the Wheat-to-Bread Value Chain and
  develop a turn-around strategy for the industry
• Work plan
• Section 7 committee already established
• Review of recent and current research reports on
  the Wheat-to-Bread Value Chain
• Request stakeholders at different levels of the
  chain to make formal submissions to the Section 7
  Committee
• Review submissions and request further
  clarifications/supporting information from chain
• Submit recommendations to Minister of Land and
  Agriculture by end of March 2008

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Retail Market Power-Dairy Industry

• Dairy investigation
• The impact of market power and dominance of
  supermarkets on agricultural producers in South
  Africa
• Preliminary results
• Points out conduct by retailers that could have
  negative long term impacts on the agricultural
  and food industry.
• Retailers avoid price increases through various
  techniques and procedures and do have the ability
  to smooth out price changes and ensure gradual
  increases over time.
• This might be beneficial to the consumer but
  there is now enough evidence that this is done at
  the cost of suppliers.
• This ultimately could have long term negative
  effects for society as a whole in the form of
  greater concentration of suppliers and potential
  shortage of food supplies.
• Similar findings in UK.
• The report will form part of NAMC submission to
  the competition commission.

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What can we do

• Supply side constraints to increase farmers
  confidence
• Land reform beneficiaries are faced with big
  challenges, for example
• Land right issues complicate their access to
  finance and credit
• Skills and knowledge transfer (tacit knowledge
  and core competencies)
• Technology transfer
• Extension support
• Inadequate or complete lack of infrastructure
• Unaligned institutional support, etc
• Investment in research, infrastructure and new
  production areas
• Address high input costs challenges

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What can we do

• Demand side constraints to increase farmers
  confidence
• Develop new markets that will encourage an
  increase in production
• Provide a package of incentives that will allow
  smme to compete
• Re-think the way we use tariffs

50
What is government doing?

• Social grants transfers
• Food security programmes
• Zero-rating of certain food stuff (19)