According to First National Bank (FNB), red meat prices are expected to drop in December and January, however, Wandile Sihlobo, an economist at Grain SA, noted that this is not set to last as the ongoing drought in the country is expected to push prices up.
Sihlobo explained: “What is going to cause the meat prices to decrease in the short term is the fact that slaughtering has increased.”
Paul Makube, senior agricultural economist at FNBnoted: “Food prices are expected to increase in the coming months due to supply constraints. Red meat prices will be down in the short term, but will rise sharply in the long term as herd rebuilding resumes following the massive drought induced culling of livestock. The weak Rand will add further pressure as most grains are import parity priced.”
Farmers are slaughtering more of their livestock as the drought reduces water availability, and the cost of feed for the animals has been increasing as the drought affects the agricultural sector as well. With this increase in slaughtering, there will be a surplus of meat, particularly red meat, during the December and January period.
The cost of meat
“Beef and lamb prices expected to fall by up to 15% during the festive season,” revealed FNB.
The bank went on to point out that on average the price of beef and sheep is already marginally down by one and two percent respectively at farm level, “with further declines expected as grazing conditions deteriorate due to a lack of rain.”
Sihlobo pointed out that there has been a 68% increase in the slaughtering of cows for beef. The price of meat is only expected to decrease until around February or March, depending on when we get rain. “As soon as we start to get good rain the price of meat is going to take an upward trend because the farmers with the livestock will stop culling because there will be more water and they will start to grow their herds.”
Consumers can start expecting to see prices decreasing from this month, moving into December. However, Sihlobo noted: “What will be interesting is that the Christmas prices might not decrease significantly as they would because of the increasing demand that is going to be coming with the festive season, so that is likely to cushion that decrease. If it wasn’t for Christmas, prices would fall significantly.”
According Makube, these lowering prices will not cause much relief for consumers, as “the drought conditions affecting the agricultural industry will have negative consequences on food prices in the longer term.”
Makube highlighted that from March and April 2016, meat prices are expected to increase significantly. Sihlobo agreed, however, according to him, from February consumers may start to experience increases.
This increase in meat prices will result as farmers re-build their herds, which will result in a long-term shortage in the supply of meat on the market. “Therefore, the increasing price of meat at farm level coupled with a contraction in meat supply will ultimately result in retailers passing on costs to the consumers,” revealed Makube.
In comparison to the cost of red meat, Makube noted that the cost of pork and poultry is expected to be higher in December “as prices are expected to trend slightly upwards due to the increased demand ahead of the festive season.”
Food price increases
Despite the price of some meat products coming down in the short term, Sihlobo points out that products such as maize and wheat have been steadily increasing over the past few months as the drought has affected supply and the farmers’ ability to plant new crops. According to Sihlobo, these price increases will start to accelerate.
“What causes this is that there is a time lapse of about six months or so before prices of maize increase, it takes that amount of time to filter through to the shelf price. For dairy and meat it takes about nine months, but because prices started increasing as early as February, that lag has already [passed by],” said Sihlobo.
On average, maize prices have increased by 14% year-on-year, while eggs are 15% higher, bread prices are seven percent higher, and wheat is about 19% more than last year, revealed Sihlobo.
“Maize related and dairy related price increases will continue until mid-next year, assuming we get good rainfall, because if we do not get good rainfall, then you are looking at 2017,” noted Sihlobo.
“Consumers must cut back on the amount of food wasted and change their buying and consumption patterns in order to meet budgets,” said Makube.