Higher food prices to descend on festive season
Mbongeni Mguni | Friday November 9, 2018 12:11
In its latest update, Statistics Botswana says the prices of bread and cereals were 5.8 percent cheaper in September, than they were in September 2017.
The data agency’s statisticians track the prices of 12 commodities and services to calculate inflation, or the movement of prices, on a monthly basis. Each of the 12 sub-indices is given a weighting according to their influence on the overall calculation. Hence the transport sub-index, which incorporates fuel price increases that impact across the board, is assigned the heaviest weight.
The food and non-alcoholic beverages index carries the second heaviest weighting and for more than a year, statisticians have watched as prices have generally been stable and, in the case of bread and cereals, actually fallen.
According to the UN’s Food and Agriculture Organisation, last year’s bumper harvest locally and in the region, helped by Cyclone Dineo, supported prices in 2017 and led to healthy opening grain stocks in 2018, which also kept prices stable for most of this year.
In 2017/18, however, the cropping season was blighted by a mid-season dry spell that led to a 78% crop production deficit for Botswana. The poor harvest dried up strategic grain reserves and pushed authorities into higher imports from a region where the country’s traditional suppliers were also battling with the same trying season.
This week, the Botswana Millers Association said the days of low food prices were numbered. Bread prices in particular, will receive a jolt as flour prices are expected to rise later this month and into the festive season.
“Consumers should expect to pay more for their holiday food basket,” Millers Association chairperson, Nkosi Mwaba says.
“South African farmers have also warned that the lingering effects of drought in SA will place additional pressure on grain prices.”
Local millers import 95% of their maize and up to 100% of their wheat grain from South African farmers, with limited supplies from the global market. Multi-faceted efforts over the years to boost the capacity of local farmers in white maize and wheat production have thus far proved limited. Success has however been scored in sorghum production, and millers are tapping the local market for this particular cereal.
Due to the region’s supplies tapering out, prices of white maize and wheat have begun rising. Rising global oil prices are also pushing prices up.
“We have seen prices of both maize and wheat grain increase at least 20% in the last few months in SA,” Mwaba said.
“Increasing global oil prices are a key factor in this inflationary trend.
“The increase in global oil will see the price of maize meal and flour products increase significantly over the festive season. “Transport is the second largest cost for producers hence the market feeling the impact of the increase in finished products on the shelves.”
The Millers Association’s forecasts are backed by Bank of Botswana (BoB) data showing that food prices are due to tick up towards the end of the year.
The central bank has identified food and international oil prices as two of the likely pressure points for its inflation projections for the rest of the year and 2019. Generally, the BoB expects inflation to trend towards the lower bounds of its three to six percent inflation target, but factors such as food and oil prices could upset the forecast.
“The current poor harvest in the region due to drought conditions, is expected to trigger an acceleration in food prices,” the BoB said in its October Monetary Policy Report.
“Moreover, the increase in international oil prices in the third quarter of 2018 is also expected to exert modest upward pressure on domestic inflation.”
The year of low food prices will look even more distant to consumers by the time the numbers come in from the upcoming cropping season. Climatologists, including the local Department of Meteorological Services, expect the dreaded El Nino phenomenon to return this season, drying up critical moments of the rain season.
Testament to its heartlessness, El Nino causes heatwaves and droughts in countries such as Botswana, Namibia and South Africa, while causing floods in others such as Tanzania, northern Zambia and Malawi. The combined effects are devastating on crop production and for Botswana, they mean fewer sources of white maize and wheat imports. Where supplies can be found, they are expensive and far, a challenge worsened by rising oil prices.
“The high chance of the El Nino condition during the 2018/19 ploughing season, giving rise to the expected low harvest, contributes to the forecast higher food prices in the medium term,” the central bank said.
Mwaba says on top of this, the millers have also seen a rise in packaging material of up to 15%.
“This is just an indication of some of the compounded market factors that may affect the price of finished goods.”
At present, the millers do not know by how much prices will increase over the festive season. They caution that “there is an impending increase in finished product prices, specifically maize meal, flour and related food products”.
The central bank has no specifics either, but it does have graphs from Bloomberg showing a sharp increase in food prices from December to the first quarter of 2019, followed by a plateauing thereafter.
The number crunchers at Statistics Botswana will have the ultimate answer. But only after the fact.