1. 1 Food Price Review

2. 2 Presentation outline Background on NAMC’s 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. 3 Background

4. 4 NAMC’s 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. 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. 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

7. 7 Implementation of FPMC recommendations Scope Rural Food Price Monitoring ProvinceNumber of outletsNumber of price collectors Western Cape1912 Free State2810 Mpumalanga239 Gauteng136 North West236 Eastern Cape187 KwaZulu-Natal2715 Northern Cape175 Limpopo2123 Total18993

8. 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) ProvinceNumber of training visits Western Cape3 Free State2 Mpumalanga3 Gauteng0 North West3 Eastern Cape2 KwaZulu-Natal2 Northern Cape2 Limpopo1 Total18

9. 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. 10 International Trends

11. 11 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 city’s markets has increased 25 percent…” –“Prices of fish and chicken have also increased 10 to 15 percent from the year before.”

12. 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. 13 Food prices in Bangladesh and India

14. 14 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

15. 15 Domestic Trends

16. 16 General & Food Inflation Trends: (Jan 1991 to Sep 2006)

17. 17 Food Price Review – Grain products

18. 18 Food Price Review – Veg, Fruit & Nuts

19. 19 Food Price Review – Sugar, cofee, tea &cocoa

20. 20 Food Price Review – Processed and unprocessed

21. 21 Relationship between food price inflation in rural and urban areas January 2004January 2005 January 2006January 2007 UrbanRuralUrbanRuralUrbanRuralUrbanRural CPI-food135.4139.1137.2139.7142.9143.7155.4156.2 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. 22 CPI Food for rural and metropolitan areas: January 2002 – December 2006

23. 23 CPI grains products for rural and metropolitan areas: January 2002 – December 2006

24. 24 CPI dairy and eggs products for rural and metropolitan areas: January 2002 – December 2006

25. 25 CPI vegetable for rural and metropolitan areas: January 2002 – December 2006

26. 26 General & Food Inflation Trends (Oct 2006 to July 2007)

27. 27 Short term food price monitoring

28. 28 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

29. 29 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%)

30. 30 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)

31. 31 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%)

32. 32 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%)

33. 33 Urban-rural comparison ProductSize Urban pricesRural pricesUrban 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 Loaf of brown bread 700g4.444.684.674.654.624.604.744.824.71%4.29% Loaf of white bread 700g4.705.185.245.315.105.195.475.3913.08%5.71% Maize meal [1] [1] 5kg15.4716.4418.9219.2221.4021.622.7924.3624.20%13.84% Cooking oil 750ml7.307.117.498.028.388.51 8.829.86%5.26% Block type margarine 500g7.97 8.688.448.018.047.988.565.83%6.91% Full cream long life milk 1ℓ6.486.716.958.016.857.147.478.2223.61%20.00% Pilchards in tomato sauce 425g7.587.507.688.018.918.929.359.645.64%8.15% Peanut butter 410g9.7310.0210.4010.8811.2211.712.1111.9111.80%6.14% Sugar 2.5kg13.8813.6413.5013.7816.2816.416.4316.51-0.75%1.39% Average 10.89%7.97% [1] [1] Super and special maize meals prices are averaged

34. 34 Factors impacting on food prices locally

35. 35 Different factors Price movements internationally International agricultural policies Monetary policy Demand factors

36. 36 Price movements: Oil prices

37. 37 Price movements: World cereal prices

38. 38 Price movements: Maize CIF costs must still be added to CBOT price

39. 39 Price movements: Meat prices

40. 40 Price movements: Dairy prices

41. 41 Agricultural policies Source: OECD database 2005

42. 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

43. 43 Monetary policy Source: SARB, 2007

44. 44 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

45. 45 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

46. 46 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

47. 47 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.

48. 48 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

49. 49 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. 50 What is government doing? Social grants transfers Food security programmes Zero-rating of certain food stuff (19)