There's (Always) Money In Food

Food prices are accelerating in South Africa and across the planet. finweek looks at SA’s listed food producer sector to gauge how they’re performing amid rising food prices.

- Jaco Visser

People must eat. Considering Maslow’s hierarchy of human needs, food, water, warmth, rest, security and safety are the basic needs of humans that require fulfilment. Money is ordinarily made when a need and a solution meet each other and the acquiring party values the solution enough to transfer cash for it.

Food, as opposed to water, is not a public good in SA and is produced according to market principles. It is a big industry. In terms of Stats SA’s basket to measure the consumer price index, food is the second-largest component after housing (another base need), comprising 15.48%.

And food prices have been accelerating locally. In December last year, the rate at which food prices (at the consumer level) increased reached double the speed of headline inflation, 6.2% compared with 3.1%. Since March this year, consumer-level food price inflation has remained above 6% annually (see graph 1). Worryingly, food price inflation at the farm gate has remained elevated above 6% per year since October last year.

Global grain scenario

So, why are food prices accelerating? Grains, which form the bulk of world food production, can explain this the best. World grain stocks (which includes wheat, coarse grains and rice) has been in decline for three years in a row with a moderate increase of 0.3% forecast for 2021/2022, according to the UN’s Food and Agriculture Organization (FAO). The world is forecast to produce 785.8m tonnes of wheat in 2021/2022 (or an increase of 1.4% from the previous marketing year), 1.516bn tonnes of coarse grains (which include maize, barley and sorghum and indicates a 2.5% production increase), and 519m tonnes of rice (1% increase), according to the FAO’s Food Outlook published in June.