by Wandile Sihlobo
Many of us South Africans have been feeling a pinch in our pockets since the 2008/09 economic crisis, but the pain worsened last year, May 2013, when the US Fed announced the tapering of the quantity easing (QE), which is basically “an unconventional monetary policy used by central banks to stimulate the economy when standard monetary policy has become ineffective”. This announcement resulted in a significant weakening of the Rand value against the US dollar, meaning that it became more expensive to import goods. On the other hand, there were hopes that this will result to an increased competitiveness of South African goods to export markets, and even economic growth. However, weak global economic climate curbed these gains. Nevertheless, this article will attempt to highlight some few expected positive news for South African citizens this festive season and early 2015. In doing that, we’ll highlight a brief overview of the major event “2013 to 2014” which happened in the in food (grain) markets.
In November 2013, South Africa’s maize (corn) prices, which serves as an input/feed in milk, meat and poultry production, increased by more than 20% per ton (from R2200/ton of white maize to R3200/ton). Meaning that South Africa’s meat, milk, eggs, poultry, maize-meal etc prices also increased significantly. All this added a burden to fellow South Africans, especially the poor, who consume a large part of the above-mentioned commodities. These maize price increases were mainly due to unexpected demand from Zimbabwe, which resulted to a sale of about 240 000 tons of South Africa’s white maize to Zimbabwe, as well as increased buying by Mexico.
However, in the beginning of March 2014, South Africa’s great agriculture saved us all, as the early harvest started to get into the markets and prices responded to normal levels. Nevertheless, these gains were not as quick to reach consumer’s pockets, due to high fuel prices (Petrol and Diesel) which were mainly supported by high Brent crude prices, at the back of unrests in the Ukraine-Russia region, Libya, as well as the weak Rand.
Recently, Brent crude prices have weakened to levels below $80 per barrel, and this has started to filter in on South Africa’s fuel prices. As a result, on the 3rd of December 2014, petrol and diesel prices are expected to respectively decrease by 79 and 57 cents per litre. This is going to come in handy during festive season, as many families will be driving long distances to holiday resorts, as well as on food prices.
In January 2015, South Africa might see further relief on fuel prices, as the “Organization of the Petroleum Exporting Countries (OPEC)” will continue with its elevated oil supplies (It was decided on the OPEC meeting held on the 27th of November that oil supplies won’t be decreased). Moreover, on the 27th of November, South Africa’s annual Producer inflation came out at 6.7% in October, from 6.9% in September. Additionally, 2014 South Africa’s maize production reached a record of 14.3 million tons. However, the country did not see large exports (white maize) as the previous years, owing to soft demand in the traditional African markets. In 2015, the International Grains Council (IGC) expects South Africa’s maize production to easy around 13 million tons. Currently, maize prices (spot price) are at low levels of R1900/ton, and expected to remain at low levels owing to available good stocks and expected normal weather conditions for the rest of the season. On the International markets, there is a lot of maize (mainly United States, South America and the Black Sea region) which will continue to put pressure on the international maize (corn) prices. On the continent, Zambia is expected to have a good crop, and will possible supply Zimbabwe, which will lessen South Africa’s export demand.
All the aforementioned aspects will translate to low inflation, which is already within the Reserve Bank’s target (3-6%), at 5.9% in October 2014. In conclusion, if spending is managed properly, Christmas time and January 21 might not be as bad as expected. There’s more exciting news in the food markets, which will indirectly translate to other gains in the economy.