Markets and Economic Research Centre

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1 Markets and Economic Research Centre Food Price Monitor August Issue/2017

2 MEDIA RELEASE FOOD PRICE MONITOR: August 2017 The basket of food products included in this publication is derived from the latest release of the Income and Expenditure Survey (IES) of 2014/15, compiled by Statistics South Africa (Stats SA). This basket is to be representative of consumer spending on food and, as a result of the IES 2014/15 release, a change was made to the CPI base year (2016=100). In the latest price information, Stats SA introduced additional products as from January 2017, and excluded some of the pre-january 2017 products. The food basket below will now have to be recalculated using the new information, taking additional observations/products obtained to include in the new basket. As a result, monthly and annual comparisons in this publication, will not be possible in the short-term. The NAMC will continue to investigate and involve industry experts in compiling a new basket, based on the latest consumer behaviour. Cognisance of the above background should therefore be taken in interpreting the data.

3 EXECUTIVE SUMMARY In July 2017, the Consumer Price Index (CPI) released by Statistics South Africa (Stats SA) indicated that the headline CPI and the food and non-alcoholic beverage price indices were 4.6% and 6.8%, respectively. The same indices were at 5.1% and 6.9% respectively during June Prices were compared for selected food items in rural and urban areas for July Food items showing the largest price differences between urban and rural areas in July 2017 were: sunflower oil 750ml at a difference of R4.46, margarine spread 500g at a R4.35 difference, Ceylon/black tea 62.5g at a R2.28 difference and a loaf of white bread 700g at a R0.93 difference. This indicates that urban consumers paid more for some of these food items than their rural counterparts. In other cases, however, rural consumers paid more for certain other products (e.g. white sugar 2.5kg, peanut butter 400g and full cream milk long life 1l) than their urban counterparts. The FAO Food Price Index (FFPI), in nominal terms, averaged points in July 2017, up 3.9 points (2.3%) from June and the third successive month of increases. This latest rise put the Index nearly 16.6 points (10.2%) above last year s level and at its highest since January A combination of supply constraints and currency movements provided support to prices of most cereals, sugar and dairy. Instead, meat values remained steady month-on-month, whereas the Vegetable Oil Index edged down. In July 2017, the cost of this basic urban food basket was R834.43, decreasing by 0.2% from June Due to the inclusion of certain new items (dried beans, 2kg frozen chicken, beef offal and chicken offal) (with no price observations prior to January 2017) no comparison is possible with July When comparing July 2017 vs. July 2016 retail prices, the very significant price inflation (10% or more) were observed for many products within the food basket (in order from highest to lowest inflation): white sugar, polony, peanut butter, tea and beef mince. This could have a negative impact on household food security in South Africa affecting the affordability of various food items making a contribution to dietary diversity. When comparing the inflation rates for July 2017 vs. July 2016, with April 2017 vs. April 2016 (i.e. the previous Food Price Monitor analysis period) the rate of inflation was lower for most food categories with the exception of fruit. In the absence of any exogenous shocks, the fundamental issues indicate that food inflation will remain between 6% and 7% over the outlook period. There are however three definite issues that pose an upside risk to this inflationary projection. The first how the Avian Influenza (AI) situation globally and locally will play out. The second is a significant rise in distribution cost. Fuel prices are set to rise in September by 61 cents per litre for petrol and 48 cents for diesel. This is likely to be followed by an increase in October, due to an increase in global oil prices as a result of the effects of hurricane Harvey and other supply constraining issues. The last, and possibly the most influential, is exchange rate depreciation. Local and global events are expected to significantly impact exchange rate movements over the next three to six months. Locally, the political climate with the ANC national conference in December is expected to significantly affect exchange rate movements. Globally, higher yields in developed economies are expected to divert capital from emerging economies. This will put pressure on exchange rates such as the rand, which would implicitly result in higher (food) inflation.

4 Table of Contents 1. Introduction Overall inflation and food inflation: South Africa and selected countries Urban and rural food price trends: July 2017 vs. July Comparison between urban and rural prices: July International food prices Estimated impact of food inflation on consumers Outlook APPENDIX A: DATA ON URBAN FOOD PRICE TRENDS APPENDIX B: DATA ON RURAL FOOD PRICE TRENDS APPENDIX C: COMMODITY AND PRODUCT PRICE TRENDS APPENDIX D: DATA COLLECTION... 22

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6 CPI - Milk, eggs and cheese CPI - Meat CPI - Sugar, sweets & desserts CPI - Fruit CPI - Fish CPI - Other food CPI - Processed CPI - Unprocessed CPI - Bread and cereals CPI - Vegetables CPI - Oils and fats Percentage change (%) Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Apr-16 Jul-16 Oct-16 Apr-17 Jul-17 Percentage (%) 1. Introduction In July 2017, the Consumer Price Index (CPI) released by Statistics South Africa (Stats SA) indicated that the headline CPI and the food and non-alcoholic beverage price indices were 4.6% and 6.8%, respectively. The same indices were at 5.1% and 6.9% respectively in June Figure 1 shows trends of the headline CPI and food and non-alcoholic beverage inflation rates on a monthly basis, from January 2012 to July Food and non-alcoholic beverages Figure 1: Headline CPI and food and non-alcoholic beverage CPI Headline CPI (year-on-year) Figure 2 presents the components of food and non-alcoholic beverage inflation rates. The following components in the food and non-alcoholic beverages indices changed year-on-year, July 2017 vs. July 2016: sugar, sweets and desserts (14.5%), milk, eggs and cheese (3.3%), fruit (-2.2%), meat (14.4%), other food (3.7%), fish (4.9%), processed foods (6.8%), unprocessed foods (6.8%), bread and cereals (2.0%), vegetables (-1.4%) and oils and fats (-2.7%). Also, indicated in Figure 2 is the month-on-month percentage changes for July vs. June Jul 2017 vs Jul 2016 Jul 2017 vs Jun Figure 2: Year-on-year (July 2017 vs. July 2016) and month-on-month (July vs. June 2017) change for different food categories

7 2. Overall inflation and food inflation: South Africa and selected countries Table 1 shows the year-on-year overall inflation and food inflation rates for July 2017 for South Africa and other selected countries. South Africa s overall inflation for July 2017 was 4.6% with food inflation at 6.8% during the same period. The food categories with the largest annual contribution to South African food inflation includes sugar, sweet and desserts, and meat. The Zambian overall inflation rate for July 2017 was 6.8%, while their food inflation rate was 5.3%. Botswana s overall inflation rate was 3.4%, compared to their food inflation of 4.3%, during July Turkey s overall inflation rate for July 2017 reduced to 9.8%, compared to their food inflation rate of 10.1%. Considering inflation rates of the BRIC countries, Russia had the highest overall inflation rate of 3.9%, with a food inflation rate of 3.8%. China recorded the lowest yearon-year inflation rate of 1.4%, with a food inflation rate of negative 1.1%. Table 1: Overall inflation and food inflation during May to July 2017 Country Overall inflation (%) May 2017 June 2017 July 2017 Inflation on food and non-alcoholic beverages (%) Overall inflation (%) Inflation on food and non-alcoholic beverages (%) Overall inflation (%) Inflation on food and nonalcoholic beverages (%) Botswana Brazil China India Namibia Russia South Africa Turkey United Kingdom United States Zambia Sources: Central banks and statistics reporting institutions of these countries, Urban and rural food price trends: July 2017 vs. July 2016 Tables 2 and 3 rank the food items included in this report into urban and rural areas, according to the various inflation rates. The food products highlighted in Table 2 are those with annual urban inflation rates that exceed the South African Reserve Bank s (SARB) inflation upper band of 6%: Table 2: Food items in the urban areas ranked according to price changes (July 2017 vs. July 2016) Grain and grain products % Sunflower oil 2l % Meat and meat products and dairy and dairy products and eggs Full cream milk - long life 500ml % Fresh and processed fruits and vegetables -5.05% Onions - fresh per kg % Special maize 1kg % Powdered milk 400g -2.45% Pineapples - per kg* % Super maize 5kg % Bacon per kg -1.82% Watermelon - per kg* % %

8 Grain and grain products % Meat and meat products and dairy and dairy products and eggs % Fresh and processed fruits and vegetables Super maize 2.5kg % Powdered milk 500g -0.87% Potatoes - fresh per kg % Special maize 2.5kg % Powdered milk 250g -0.63% Sweet potatoes - fresh per kg % -8.98% Super maize 1kg -7.18% Eggs 1.5 dozen -0.59% Pears - per kg* -5.91% Sunflower oil 750ml -5.35% Full cream milk - fresh 500ml -0.30% Oranges - fresh per kg -4.50% Rice 10kg -4.45% Full cream milk - fresh 2l -0.04% Tomatoes - fresh per kg -2.64% Brick margarine 250g -2.25% Low Fat milk - long life 1l 0.44% Bananas - fresh per kg 2.01% Sunflower oil 500ml -1.41% Full cream milk - long life 1l 0.73% Baked beans - tinned 410g 6.14% Cake flour 2.5kg -0.69% Powdered milk 900g 1.51% Grapes - per kg* 6.62% Cake flour 5kg 0.31% Eggs 0.5 dozen 1.59% Sweetcorn/Baby Corn/Mielies* 6.85% Brick margarine 500g 0.90% Fish (excl. tuna) - tinned 400g 2.79% Apples - fresh per kg 7.24% Brick margarine 125g 0.96% Fish (excl. tuna) - tinned 215g 2.95% Cabbage - fresh each 7.67% Spaghetti 500g 1.67% Chicken portions - fresh per kg 4.85% Beetroot - fresh per kg 8.13% Rice 500g 2.23% Low Fat milk - fresh 1l 5.85% Cauliflower - fresh per kg 12.99% Loaf of brown bread 700g 2.70% Full cream milk - fresh 1l 6.37% Pumpkin - fresh per kg 14.02% Macaroni 500g 2.92% Whole chicken - fresh per kg 6.95% Cabbage - fresh per kg 15.71% Loaf of white bread 700g 3.07% Eggs 2.5 dozen 8.18% Avocado - per kg* 25.24% Margarine spread 1kg 3.17% Cheddar cheese per kg 8.36% Plum - per kg* 35.11% Cake flour 1kg 3.33% Fish (excl. tuna) - tinned 155g 9.35% Peaches - per kg* 43.69% Cold Cereals 750g 3.64% Tuna - tinned 170g 11.20% Mango - per kg* % Rice 2kg 4.07% Beef mince - fresh per kg 11.95% Brick margarine 1kg 4.45% Pork chops - fresh per kg 12.60% Other % Cold Cereals 375g 4.57% Lamb - rib chop per kg 13.35% Instant coffee 100g -1.40% Cold Cereals 450g 4.80% Beef rump steak - fresh per kg 13.39% Instant coffee 750g 0.23% Cold Cereals 500g 4.81% Beef T-bone - fresh per kg 13.52% Ceylon/black tea 125g 1.97% Loaf of white bread 600g 4.82% Lamb - loin chop per kg 13.90% Instant coffee 250g 3.91% Loaf of brown bread 800g 4.90% Lamb - leg per kg 14.19% Ceylon/black tea 500g 7.44% Loaf of brown bread 600g 7.42% Polony per kg 14.22% White sugar 250g 9.49% Rice 5kg 7.49% Pork - ribs per kg 14.88% Instant coffee 200g 10.06% Rice 1kg 9.65% Lamb - neck per kg 17.38% Ceylon/black tea 250g 12.29% Cold Cereals 400g 10.02% Beef chuck - fresh per kg 17.49% Ceylon/black tea 62.5g 14.04% Peanut butter 800g 10.21% Beef brisket - fresh per kg 18.66% White sugar 500g 16.33% Peanut butter 400g 13.97% White sugar 1kg 17.77% Margarine spread 500g 14.36% White sugar 10kg 18.89% White sugar 2.5kg 19.13% Instant coffee 500g 19.67% White sugar 5kg 21.10% Source: Stats SA and AC Nielsen*, 2017 Note: Food items highlighted in the table above experienced price increases above the South African Reserve Bank s (SARB) inflation target of 6% The food products highlighted in Table 3 record the products which exceed the SARB annual inflation rate of 6% in the rural areas.

9 Table 3: Food items in the rural areas ranked according to price changes (July 2017 vs. July 2016) Grain and grain products % Meat and meat products and dairy and dairy products and eggs % Fresh and processed fruits and vegetables Special maize 5kg % Low fat milk - fresh 2l -2.90% Potatoes - Fresh 10kg % Sunflower oil 2l -9.72% Full cream milk - fresh 2l -1.24% Onions - Fresh per kg % Super maize 2.5kg -6.67% Full cream milk - fresh 1l 1.50% Potatoes - Fresh per kg % Special maize 2.5kg -5.32% Full cream milk - long life 1l 3.10% Beans Dried 2kg -9.85% Sunflower oil 750ml -5.23% Full cream milk - long life 500ml 3.31% Bananas - Fresh per kg -3.65% Super maize 5kg -5.07% Low fat milk - fresh 1l 3.85% Tomatoes - Fresh per kg -0.75% Margarine Spread (In A Tub) 1 Kilogram -4.92% Full cream milk - fresh 500ml 8.49% Apples - Fresh per kg -0.05% Special maize 1kg -2.06% Eggs 1/2 dozen 8.93% Beans Dried 500g 6.19% Rice 2kg 0.65% Fish (excl. tuna) - tinned 155g 9.16% Beans Dried 1kg 6.49% Super maize 1kg 1.51% Beef T-bone - fresh per kg 10.56% Oranges - Fresh per kg 13.68% Sunflower oil 500ml 2.67% Beef rump steak -fresh per kg 10.93% Loaf of white bread 700g 2.68% Fish (excl. tuna) - tinned 425g 12.50% Other products % Brick margarine 500g 3.18% Beef brisket - fresh per kg 15.40% Instant Coffee 750g 1.26% Loaf of brown bread 700g 4.01% Beef fillet - fresh per kg 16.58% Ceylon/black tea 250g 1.63% Brick margarine 250g 4.47% Beef chuck - fresh per kg 17.50% Instant Coffee 250g 4.78% Loaf of white bread 600g 4.68% Chicken portions - fresh per kg 58.33% White sugar 500g 7.50% Loaf of brown bread 600g 5.62% Instant Coffee 100g 7.90% Rice 1kg 6.17% Ceylon/black tea 62.5g 10.37% Brick margarine 125g 6.53% White sugar 2.5kg 14.29% Rice 500g 10.20% Ceylon/black tea 125g 16.92% Margarine Spread (In A Tub) 500 Gram 12.10% Sorghum meal (e.g. mabella) 1kg % 18.72% Peanut butter 400g 15.74% White sugar 1kg 20.13% Peanut butter 270g 16.21% Ceylon/black tea 200g 20.18% Peanut butter 800g 20.26% Margarine Spread (In A 23.30% Tub) 250 Gram Note: Food items highlighted in the table above experienced price increases above the South African Reserve Bank s (SARB) inflation target of 6% A closer look at annual food price trends: July 2017 vs. July 2016 During the period, July 2017 vs. July 2016, the international price of wheat (US No 2, Hard Red Winter ord. Prot., US Fob Gulf) increased by 33.42%, while the domestic wheat prices decreased by 0.34%. Urban consumers paid 2.7% more for a loaf of brown bread (700g) and 3.07% more for a loaf of white bread (700g) during the same period. During the same period, domestic yellow maize prices decreased by 41.36%, while international yellow maize prices also decreased but only by 2.63%. Super maize meal (2.5kg) decreased with 11.69%, whilst special maize meal (2.5kg) decreased with 10.97%, in urban areas. During the same period, the urban prices of sunflower oil (750ml) decreased with 5.35%. During July 2017, the domestic price of sunflower seed was R /ton compared to the R /ton price of July 2016, resulting in a decline of 22.88%.

10 During this period July 2017 vs. July 2016, the average meat producer prices experienced an increasing trend. The average beef producer prices of class A2/A3 (R/kg), class B2/B3 (R/kg) and C2/C3 (R/kg) increased by 23.29%, 26.67% and 34.1%, respectively. Lamb/mutton producer prices of class A2/A3 (R/kg), class B2/B3 (R/kg) and class C2/C3 (R/kg) all increased by 22.03%, 37.96% and 26.74%, respectively. Producer prices of frozen, fresh and individually quick frozen (IQF) chicken portions (R/kg) increased by 23.41%, 21.18% and 40.13%, respectively, during the same period. 4. Comparison between urban and rural prices: July 2017 Table 2 compares prices of selected food items in rural and urban areas for July The food items which showed the largest price differences between urban and rural areas in July 2017were: sunflower oil 750ml at a difference of R4.46, margarine spread 500g at a R4.35 difference, Ceylon/black tea 62.5g at a R2.28 difference and a loaf of white bread 700g at a R0.93 difference. This indicates that urban consumers paid more for some of these food items than their rural counterparts. In other cases, however, rural consumers paid more for certain other products (e.g. peanut butter 400g, white sugar 2.5kg and full cream milk long life 1l) than their urban counterparts. Table 2: Comparison between urban and rural food prices (selected food items) Product Rural Food Prices July 2017 Urban Food Prices July 2017 Price difference R/unit Full cream milk long life 1l Loaf of brown bread 700g Loaf of white bread 700g Special maize 2.5 kg Super maize 2.5 kg Margarine spread 500g Peanut butter 400g Rice 2kg Sunflower oil 750ml Ceylon/black tea 62.5g White sugar 2.5kg Average International food prices The Food and Agricultural Organization (FAO) of the United Nations publishes its food price index on a monthly basis. The food price index consists of five commodity group price indices, namely, the meat price index, the dairy price index, the cereals price index, the oils price index and the sugar price index. These indices are weighted with the average export shares of each of the groups for 2002 to In total, 55 commodity quotations, considered by FAO commodity specialists as representing the international prices of the noted food commodities, are included in the overall index. Figure 3 shows the overall monthly real FAO food price index from 2012 to 2017, with July 2017 reaching an index level of percentage points.

11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Apr-16 Jul-16 Oct-16 Apr-17 Jul-17 Index ( = 100) Food Price Inex ( = 100) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Figure 3: International monthly real food price index Source: FAO, 2017 Figure 4 shows the monthly price indices for the five food categories in real terms. The month-on-month, July vs. June 2017, percentage growth differences of indexes were: Dairy (+3.63%), Cereals (+5.14%), Oils Price (-1.1%), Sugar Price (+5.19%) and for Meat (-0.08%). Year-on-year, July 2017 vs. July 2016, reflected increasing trends in real terms in most of the indexes, except for the Sugar Price Index (-25.56%) Meat Price Index Dairy Price Index Cereals Price Index Oils Price Index Sugar Price Index Figure 4: Real price indices for five food categories Source: FAO, 2017 The FAO Food Price Index (FFPI) 1, in nominal terms, averaged points in July 2017, up 3.9 points (2.3%) from June and the third successive month of increases. This latest rise put the Index nearly 16.6 points (10.2%) above last year s level and at its highest since January A combination of supply constraints and currency movements provided support to prices of most cereals, sugar and dairy. Instead, meat values remained steady month-on-month, whereas the Vegetable Oil Index edged down. 1 Unlike for other commodity groups, most prices utilized in the calculation of the FAO Meat Price Index are not available when the FAO Food Price Index is computed and published; therefore, the value of the Meat Price Index for the most recent months is derived from a mixture of projected and observed prices. This can, at times, require significant revisions in the final value of the FAO Meat Price Index which could in turn influence the value of the FAO Food Price Index.

12 The FAO Cereal Price Index, in nominal terms, averaged points in July, up almost 8 points (5.1%) from June and 14.1 points (9.5%) from July Cereal prices have risen consistently over the past three months, driven by stronger wheat prices and, to a lesser extent, also firmer rice quotations. Wheat values rose the most in July, as continued hot and dry weather deteriorated spring wheat conditions further in North America, fuelling quality concerns, particularly for higher protein wheat. Seasonal tightness also provided some support to rice quotations, although gains were capped by a slowdown in demand. Instead, maize values remained largely steady, as support provided by a more rapid pace of foreign purchases by China was outweighed by improved weather conditions in the United States. The FAO Vegetable Oil Price Index, in nominal terms, averaged points in July, down 1.8 points (or 1.1%) from June and marking the lowest level since August The slide was driven by palm oil, the key commodity in the Index. International palm oil quotations continued to ease on good production prospects in Southeast Asia and weak global import demand, notwithstanding low inventory levels. On the other hand, world soy oil prices firmed, fuelled by concerns regarding soybean growing conditions in the United States, as unusually dry weather was reported from several producing regions. Rapeseed and sunflower oil values also strengthened, preventing the Index from falling more markedly. The FAO Dairy Price Index, in nominal terms, averaged points in July, up 7.6 points (3.6%) from June and 74.3 points (52.2%) above its value in July Despite this latest increase, the Index is still 21% below its peak reached in February International prices of butter, cheese and Whole Milk Powder (WMP) increased, but those of Skimmed Milk Powder (SMP) declined. Tighter export availabilities pushed butter prices to a new high in July, widening the spread between butter quotations and other dairy products further. While strong buying activity from Asian importers also underpinned cheese and WMP quotations, SMP prices were weighed down by slack demand and prospects of larger releases from the intervention stocks in the EU. The FAO Meat Price Index 2, in nominal terms, averaged points in July, virtually unchanged from June. At this level, the Index is 8.2% above July 2016 and 17.4% below its peak reached in August An increase in international prices for ovine meat in July was offset by downward price movements in bovine, pig and poultry sectors. In the case of bovine meat, prices fell due to weaker import demand in the United States because of increased domestic supplies. While global markets for pig and poultry meat remained well supplied, international prices could have declined further if not for strong consumer demand. Ovine meat prices rose for the fourth consecutive month, reflecting reduced export supplies from Oceania. The FAO Sugar Price Index, in nominal terms, averaged points in July, up 10.2 points (5.2%) from June, but still 26% below its value a year earlier. July marked the first monthly increase in sugar prices since the beginning of the year. A strong appreciation of the Brazilian real was the main catalyst for July s rebound in sugar quotations, although generally favourable weather aided the harvest in Brazil, the world s largest supplier, as well as crop development in Thailand and India. 6. Estimated impact of food inflation on consumers The estimated impact of food inflation on consumers The purpose of this section is to illustrate the impact of food inflation on consumers. The analysis presented in this section is based on the cost of a basic food basket 3 (as originally compiled by the Food Price 2 Unlike for other commodity groups, most prices utilized in the calculation of the FAO Meat Price Index are not available when the FAO Food Price Index is computed and published; therefore, the value of the Meat Price Index for the most recent months is derived from a mixture of projected and observed prices. This can, at times, require significant revisions in the final value of the FAO Meat Price Index which could in turn influence the value of the FAO Food Price Index. 3 Composition of the new basic food basket: Apples fresh (per kg), Baked beans tinned (410g), Bananas fresh (per kg), Beans dried (500g), Beef mince fresh (per kg), Beef offal fresh (per kg), Bread loaf brown (700g), Bread loaf white (700g), Cabbage fresh (per kg), Cheese cheddar (per kg), Chicken giblets (per kg), Chicken portions IQF (2kg), Coffee instant (250g), Eggs (1.5 dozen), Fish (excl.

13 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Nominal food basket cost (R) Estimated share of income (%) Monitoring Committee in 2003, which was revised in January 2017), based on monthly average food price data for the period July 2016 to July In July 2017, the cost of this basic urban food basket was R834.43, decreasing by 0.2%, from June Due to the inclusion of additional products in the new CPI basket (dried beans, 2kg frozen chicken, beef offal and chicken offal) (with no price observations prior to January 2017), no comparison of the current basket is possible with July The cost of this food basket expressed as a share of the average monthly income 4 of the poorest 30% of the population was 55.3% in July 2017, compared to 56.2% in June The cost of the food basket expressed as a share of the average monthly income of the wealthiest 20% of the population was 2.9%, compared to 3.0% in June NOTE: NEW BASKET COMPOSITION FROM JANUARY % 80% 70% 60% 50% 40% 30% 20% 10% 0% Total nominal basket cost Share of income ED1-3 Share of income ED9-10 Figure 5: The cost of a typical consumer food basket for the period July 2016 to July 2017, expressed in nominal terms and as share of the average income of the poorest 30% of households (Expenditure Deciles [ED] 1-3) and the wealthiest 20% of households ([ED] 9-10) Source: BFAP calculations, based on Stats SA monitored price data for urban areas, 2017 To further explore the impact of inflation on consumers, Figure 5 presents an illustration of the average monthly nominal cost growth of specific food groups within the basic food basket, comparing June 2017 to July 2017 prices. Comparing July 2017 vs. June 2017 prices, the following food categories experienced inflation: meat, bean products, fats/oils and sugary foods. All other food categories had a cost decline from June 2017 to July The various food groups within this food basket are discussed in more detail in Table 3 below. tuna) tinned (400g), Maize meal super (5kg), Margarine brick (500g), Milk full cream long life (1l), Onions fresh (per kg), Oranges fresh (per kg), Peanut butter (400g), Polony (per kg), Potatoes fresh (per kg), Rice (2kg), Sugar white (2.5kg), Sunflower oil (750ml), Tea Ceylon/black (250g), Tomatoes fresh (per kg). 4 The cost of the typical food basket was expressed as a share of estimated average monthly income of Expenditure Deciles 1-3, the poorest 30% of the population, as calculated from the Stats SA Living Conditions Survey 2014/15 (household income estimated by total expenditure of households on all items).

14 Animal protein Bread & Cereals Coffee & Tea Vegetabl es Dairy & Eggs Fruit Bean products Fats & Oils Sugary foods Nominal cost of food groups in basic food basket (R) % Jun-17 Jul % % -2.1% -5.2% +1.6% +0.2% +0.1% 0 Figure 6: Nominal monthly cost of specific food groups within the basic food basket, July 2017 vs. June 2017 Source: BFAP calculations, based on Stats SA monitored price data for urban areas, 2017

15 Table 3: Overview of inflation contributing foods within the basic food basket, July 2017 vs. July 2016 Food group: Overall inflation rate: Major contributors to Jul 2017 Apr 2017 inflation in this category: vs. Jul vs. Apr * Animal protein N/A N/A Polony (+14.2%) Beef mince (+11.9%) Minor contributors to inflation in this category: Tinned fish (+2.8%) Non-contributors to inflation in this category: Comments: Inflation on polony, beef mince and tinned fish. Bread and cereals -4.3% +4.1% Rice (+4.1%) White bread (+3.1%) Brown bread (+2.7%) Maize meal (-11.9%) Some inflation on bread and rice. Significant deflation on maize meal. Vegetables -8.6% -21.3% Cabbage (+15.7%) None Potatoes (-14.6%) Onions (-25.4%) Tomatoes (-2.6%) Deflation observed for most vegetable options, except for cabbages. Fruit +2.3% -0.9% Apples (+7.2%) Bananas (+2.0%) Oranges (-4.5%) High inflation on apples and some inflation on bananas. Dairy +4.5% +6.0% Cheddar cheese (+8.4%) Full cream milk - long life 1l (+0.7%) None Inflation on the price of cheddar cheese. Some inflation on eggs. Eggs -0.6% +4.7% None None Eggs (-0.6%) Fats and -2.3% +3.3% None Brick margarine Sunflower oil (-5.3%) oils (+0.9%) Very low inflation on margarine and deflation on sunflower oil. Bean products N/A N/A Peanut butter (+14.0%) Baked beans (+6.1%) None None High inflation on peanut butter and baked beans. Coffee and +7.7% +11.9% Ceylon/black tea (+12.3%) None None Inflation on coffee and tea. tea Instant coffee (+3.9%) Sugary foods +19.1% +24.8% White sugar (+19.1%) None None High inflation on white sugar Source: BFAP calculations, based on Stats SA monitored price data for urban areas, 2017 * Previous Food Price Monitor analysis period prior to July 2017 vs. July 2016 comparison Thus, when comparing July 2017 vs. July 2016 retail prices, the very significant price inflation (10% or more) were observed for many products within the food basket (in order from highest to lowest inflation): white sugar, polony, peanut butter, tea and beef mince. This could have a negative impact on household food security in South Africa affecting the affordability of various food items making a contribution to dietary diversity. When comparing the inflation rates for July 2017 vs. July 2016, with April 2017 vs. April 2016 (i.e. the previous Food Price Monitor analysis period) the rate of inflation was lower for most food categories with the exception of fruit.

16 Portion cost (R) The impact of inflation on very poor consumers is further explored below, based on the typical portion sizes of very poor consumers of the five most widely consumed food items in South Africa represented by maize porridge, brown bread, sugar, tea and full cream milk (National Food Consumption Survey - Steyn & Labadarios, ; Oldewage-Theron et al, ). Figure 6 illustrates the estimated portion costs for these foods, calculated from monthly food price data for July 2016 to July Similar to other Food Price Monitor analysis periods, the significant cost contribution of maize meal and bread to the typical basic daily food selection for poor consumers are emphasised by the results in Figure 6. Furthermore, despite the relatively low actual food weight contribution of bread to this food plate, the bread component costs more than the maize porridge component (about 38% more in this case for July 2017). When comparing the costs associated with the typical portion sizes of very poor consumers for the five most widely consumed food items in South Africa, based on July 2017 vs. July 2016 prices, the results in Figure 6 indicated deflation of about 1.5% (from R6.07 to R5.98 for the selection of portions). Significant deflation on maize meal and minimal inflation on milk and brown bread, contributed to the deflation observed on this food plate. From June 2017 to July 2017 the costs associated with the typical portion sizes of very poor consumers for the five most widely consumed food items in South Africa decreased by 1.0%. R 7.00 R 6.00 R 5.00 R 4.00 R 3.00 R R 0.35 R 0.32 R 0.80 R 0.80 R 2.54 R 2.61 White sugar (22g) Tea (2.5g) Full cream milk (56g) R 2.00 Brown bread (150g) R 1.00 R 0.00 Figure 7: Average nominal cost for the typical portions of the five food items most widely consumed by very poor consumers in South Africa, July 2017 vs. July 2016 Source: BFAP calculations, based on Stats SA monitored price data for urban areas, Outlook R 2.15 R 1.90 `Jul-16 `Jul-17 Maize porridge cooked (532g) Food inflation in July 2017 decreased marginally to 6.8% from, 6.9% recorded in the previous month. This sideways movement is attributable to tale of two diverging trends. Whilst most of the products in the food inflation basket have experienced very low levels of inflation or even deflation, meat, which is the food product group with the largest weighting in the consumer food basket, is showing double digit inflation. This is supporting aggregate food inflation at current levels. The high levels of meat inflation are, in turn, attributable to a myriad of factors. The first is herd rebuilding as a result of the 2015/16 drought. Secondly, 5 Steyn NP, Labadarios D. National Food Consumption Survey: Children aged 1 9 years, South Africa, Cape Town: The Department of Health Directorate Nutrition, Oldewage-theron W, Dicks E, Napier C, et al. Situation analysis of an informal settlement in the Vaal Triangle. Development Southern Africa 2005; 22 (1): 13-26

17 the relatively weak exchange rate over the past two years has been creating attractive export opportunities for red meat. Both of these factors were already identified and mentioned before, and it is expected that the impact of herd rebuilding on price levels will last at least for the next year. However, the rate of growth in exports is expected to decline over the outlook period due to an increase in domestic red meat prices relative to international prices. International red meat prices have declined in Rand terms due to the appreciation of the currency and high global stock levels of red meat. The last and most recent is the Avian Influenza outbreak, which is putting pressure on local poultry supplies. This could have a notable effect on South Africa s poultry trade dynamics, which could have price implications that extend well beyond the outlook period. Over the next three months, prices of red meat are expected to move side-ways. This will be driven by a gradual increase in supply response to favourable price levels. This sideways movement is however expected to continue to result in year-on-year inflation in excess of 10% which, as mentioned above, will support total food inflation at levels around 6%. In terms of poultry, a key uncertainty is Avian Influenza (AI), locally and abroad. Locally, although the recorded incidents were relatively few and isolated, the progression of the virus could have definite market impacts. Industry experts note that the spread of the disease is usually constrained when it starts raining. Sufficient early summer rains could therefore see the local problem being contained within the outlook period. Conversely, if this does not happen, the spread of the disease could increasingly affect local supply which could provide room for larger import volumes. This is expected to put upward pressure on prices in the short term which could be offset by the loss of regional poultry markets, which ban imports as a result of AI. Most notably, Zimbabwe, Namibia and Botswana have stopped poultry imports from South Africa after the recent AI outbreaks. AI is also widespread across the European Union which is a major exporter of bone-in portions to South Africa. This recently served as a price support for local prices. With the summer grain production season drawing to a close, recorded figure show that the size of the crop has almost doubled from the previous season. In response to this, maize meal prices have shown a declining month-on-month trend since April as the sharp drop in maize prices is being transmitted to maize meal prices. There is normally a lag of three to four months in the transmission of maize prices to maize meal prices, and with white maize prices that have currently stabilized around R1 800/ton levels, the declining trend in maize meal prices is expected to end within the next month or two. Year-on-year figures also point to a 12% reduction in maize meal prices. Going forward, with maize supply figures for the current season known, the key driver for maize prices in the outlook period will be the exchange rate that will drive South Africa s relative competitiveness in the export market and towards the end of the outlook period (October) the first rains and early intentions to plant will become a key driver of maize prices. Bread prices, in turn, are roughly 3% higher than a year ago. It is expected that this marginal increase is attributable to distributional and manufacturing cost not related to the underlying agricultural commodity (wheat) of which global and local prices have been relatively flat and are expected to trade sideways over the next three months. Retail prices of potatoes have been decreasing steadily since the beginning of The third and fourth quarter of the year is typically a time associated with high sales and relatively low(er) prices, when compared to the rest of the year. It is therefore expected that prices of potatoes will continue with a downward trend over the outlook period. Other vegetables such as tomatoes and onions are expected to follow suit. It should be noted that vegetable prices are coming down from the high base in 2016 and as a result, despite an apparent deflation, absolute prices are still relatively high. In the absence of any exogenous shocks, the fundamental issues indicate that food inflation will remain between 6% and 7% over the outlook period. There are however three definite issues that pose an upside risk to this inflationary projection. The first how the AI situation globally and locally will play out. The second is a significant rise in distribution cost. Fuel prices are set to rise in September by 61 cents per litre for petrol

18 and 48 cents for diesel. This is likely to be followed by an increase in October, due to an increase in global oil prices as a result of the effects of hurricane Harvey and other supply constraining issues. The last, and possibly the most influential, is exchange rate depreciation. Local and global events are expected to significantly impact exchange rate movements over the next three to six months. Locally, the political climate with the ANC national conference in December is expected to significantly affect exchange rate movements. Globally, higher yields in developed economies are expected to divert capital from emerging economies. This will put pressure on exchange rates such as the rand, which would implicitly result in higher (food) inflation.

19 APPENDIX A: DATA ON URBAN FOOD PRICE TRENDS Table A.1: Wheat products Wheat products Cake flour 1kg % 3.33% Cake flour 2.5kg % -0.69% Cake flour 5kg % 0.31% Instant noodles 73g % Instant noodles 75g % Instant noodles 78g % Instant noodles 85g % Loaf of brown bread (each) % Loaf of brown bread 600g % 7.42% Loaf of brown bread 700g % 2.70% Loaf of brown bread 800g % 4.90% Loaf of white bread (each) % Loaf of white bread 600g % 4.82% Loaf of white bread 700g % 3.07% Macaroni 1kg % Macaroni 3kg Macaroni 500g % 2.92% Pasta 1kg % Pasta 500g % Spaghetti 1kg % Spaghetti 500g % 1.67% Average 3.58% 3.05% Domestic price of wheat 4, , , % -0.34% Table A.2: Maize products Maize products Jul-16 Apr-17 Jul-17 Jul-17 vs Apr- 17 Special maize 10kg % Jul-17 vs Jul- 16 Special maize 1kg % % Special maize 2.5kg % % Special maize 5kg % Super maize 1kg % -7.18% Super maize 2.5kg % % Super maize 5kg % % Average -9.27% %

20 Maize products Jul-16 Apr-17 Jul-17 Jul-17 vs Apr- 17 Jul-17 vs Jul- 16 Domestic price of yellow maize 3, , , % % Domestic price of white maize 4, , , % % Table A.3: Sunflower products Sunflower products Brick margarine 125g % 0.96% Brick margarine 1kg % 4.45% Brick margarine 250g % -2.25% Brick margarine 500g % 0.90% Margarine spread 1kg % 3.17% Margarine spread 500g % 14.36% Sunflower oil 2l % % Sunflower oil 4l % Sunflower oil 500ml % -1.41% Sunflower oil 750ml % -5.35% Average -0.19% 0.23% Domestic price of sunflower seed 6, , , % % Table A.4: Processed vegetables Processed vegetables Baked beans - tinned 410g % 6.14% Beans - dried 1kg % Beans - dried 2kg % Beans - dried 500g % Average -1.58% 6.14% Table A.5: Fresh vegetables Fresh vegetables Avocado - per kg* % 25.24% Beetroot - fresh per kg % 8.13% Cabbage - fresh each % 7.67% Cabbage - fresh per kg % 15.71% Cauliflower - fresh per kg % 12.99% Onions - fresh per kg % %

21 Fresh vegetables Potatoes - fresh per kg % % Pumpkin - fresh per kg % 14.02% Sweetcorn/Baby Corn/Mielies* % 6.85% Sweet potatoes - fresh per kg % -8.98% Tomatoes - fresh per kg % -2.64% Average -3.27% 3.54% Source: Stats SA, AC Nielsen*, 2017 Table A.6: Processed meat Processed meat Bacon per kg % -1.82% Polony per kg % 14.22% Average % 6.20% Table A.7: Unprocessed meat Unprocessed meat Jul-16 Apr-17 Jul-17 Jul-17 vs Apr- 17 Jul-17 vs Jul- 16 Beef brisket - fresh per kg % 18.66% Beef chuck - fresh per kg % 17.49% Beef mince - fresh per kg % 11.95% Beef offal - fresh per kg % Beef rump steak - fresh per kg % 13.39% Beef T-bone - fresh per kg % 13.52% Chicken giblets per kg % Chicken portions - fresh per kg % 4.85% Chicken portions frozen - non IQF average per kg Chicken portions frozen - non IQF per kg (real) % % IQF chicken portions - 1,5kg % IQF chicken portions - 1,8kg % IQF chicken portions - 1kg % IQF chicken portions - 2kg % IQF chicken portions - 4kg % IQF chicken portions - 5kg % Lamb - leg per kg % 14.19% Lamb - loin chop per kg % 13.90%

22 Unprocessed meat Jul-16 Apr-17 Jul-17 Jul-17 vs Apr- 17 Jul-17 vs Jul- 16 Lamb - neck per kg % 17.38% Lamb - offal per kg % Lamb - rib chop per kg % 13.35% Pork - ribs per kg % 14.88% Pork chops - fresh per kg % 12.60% Whole chicken - fresh per kg % 6.95% Average 4.02% 13.32% Table A.8: Eggs and dairy products Eggs & dairy products Cheddar cheese per kg % 8.36% Eggs 0.5 dozen % 1.59% Eggs 1,5 dozen % -0.59% Eggs 2 dozen % Eggs 2.5 dozen % 8.18% Eggs 4 dozen % Full cream milk - fresh 1l % 6.37% Full cream milk - fresh 250ml % Full cream milk - fresh 2l % -0.04% Full cream milk - fresh 500ml % -0.30% Full cream milk - long life 1l % 0.73% Full cream milk - long life 500ml % -5.05% Full cream milk - long life 6x1l % Low Fat milk - fresh 1l % 5.85% Low Fat milk - fresh 2l % Low Fat milk - long life 1,5l % Low Fat milk - long life 1l % 0.44% Low Fat milk - long life 2l % Powdered milk 250g % -0.63% Powdered milk 400g % -2.45% Powdered milk 500g % -0.87% Powdered milk 900g % 1.51% Average -0.02% 1.54% Table A.9: Fruits Fruits

23 Apples - fresh per kg % 7.24% Bananas - fresh per kg % 2.01% Grapes - per kg* % 6.62% Mango - per kg* % % Naartjies - fresh per kg % Oranges - fresh per kg % -4.50% Peaches - per kg* % 43.69% Pears - fresh per kg % Pears - per kg* % -5.91% Pineapples - per kg* % % Plum - per kg* % 35.11% Watermelon - per kg* % % Average 4.31% 23.39% Source: Stats SA, AC Nielsen*, 2017 Table A.10: Fish Products Tinned fish products Fish (excl. tuna) - tinned 155g % 9.35% Fish (excl. tuna) - tinned 215g % 2.95% Fish (excl. tuna) - tinned 400g % 2.79% Tuna - tinned 170g % 11.20% Average 1.50% 6.57% Table A.11: Other products Other products Cold Cereals 375g % 4.57% Cold Cereals 400g % 10.02% Cold Cereals 450g % 4.80% Cold Cereals 500g % 4.81% Cold Cereals 750g % 3.64% Ceylon/black tea 125g % 1.97% Ceylon/black tea 250g % 12.29% Ceylon/black tea 500g % 7.44% Ceylon/black tea 62.5g % 14.04% Instant coffee 100g % -1.40% Instant coffee 200g % 10.06% Instant coffee 250g % 3.91% Instant coffee 500g % 19.67% Instant coffee 750g % 0.23% Peanut butter 250g %

24 Other products Peanut butter 400g % 13.97% Peanut butter 800g % 10.21% Rice 10kg % -4.45% Rice 1kg % 9.65% Rice 2kg % 4.07% Rice 500g % 2.23% Rice 5kg % 7.49% White sugar 10kg % 18.89% White sugar 1kg % 17.77% White sugar 2.5kg % 19.13% White sugar 250g % 9.49% White sugar 2kg % White sugar 500g % 16.33% White sugar 5kg % 21.10% Average 1.70% 8.96%

25 APPENDIX B: DATA ON RURAL FOOD PRICE TRENDS Table B.1: Wheat products Wheat products Loaf of brown bread 600g % 5.62% Loaf of brown bread 700g % 4.01% Loaf of white bread 600g % 4.68% Loaf of white bread 700g % 2.68% Average 0.94% 4.25% Table B.2: Maize products Maize products Special maize 1kg % -2.06% Special maize 2.5kg % -5.32% Special maize 5kg % % Super maize 1kg % 1.51% Super maize 2.5kg % -6.67% Super maize 5kg % -5.07% Average -6.65% -5.19% Table B.3: Sunflower products Sunflower products Brick margarine 125g % 6.53% Brick margarine 250g % 4.47% Brick margarine 500g % 3.18% Margarine Spread (In A Tub) 1 Kilogram % -4.92% Margarine Spread (In A Tub) 250 Gram % 23.30% Margarine Spread (In A Tub) 500 Gram % 12.10% Sunflower oil 2l % -9.72% Sunflower oil 500ml % 2.67% Sunflower oil 750ml % -5.23% Average 2.11% 3.60%

26 Table B.4: Dairy products Dairy products Eggs 1/2 dozen % 8.93% Full cream milk - fresh 1l % 1.50% Full cream milk - fresh 2l % -1.24% Full cream milk - fresh 500ml % 8.49% Full cream milk - long life 1l % 3.10% Full cream milk - long life 500ml % 3.31% Low fat milk - fresh 1l % 3.85% Low fat milk - fresh 2l % -2.90% Average 1.24% 3.13% Table B.5: Tea and coffee Tea and coffee Ceylon/black tea 125g % 16.92% Ceylon/black tea 200g % 20.18% Ceylon/black tea 250g % 1.63% Ceylon/black tea 62.5g % 10.37% Instant Coffee 100g % 7.90% Instant Coffee 250g % 4.78% Instant Coffee 750g % 1.26% Average 1.06% 9.01% Table B.6: Beans Beans Beans Dried 1kg % 6.49% Beans Dried 2kg % -9.85% Beans Dried 500g % 6.19% Average -1.52% 0.94% Table B.7: White sugar Sugar White sugar 1kg % 20.13% White sugar 2.5kg % 14.29% White sugar 500g % 7.50%