Drier and hotter weather than usual across South Africa's main summer crop growing regions has worsened the outlook for the key maize crop, raising the risk of higher food price inflation, an agricultural industry group said.
“The main risk to consumer food inflation in South Africa in 2024 will be primarily white maize products,” said Wandile Shilobo, chief economist at the South African Chamber of Agriculture and Commerce. “We see upside risks to corn and grain prices in the consumer food inflation basket,” he said.
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Read: Shisan Nyama index suggests SA food inflation could ease further
South Africa's central bank is closely monitoring food prices to see if it can safely start cutting interest rates later this year. The government has repeatedly cited the risk to inflation from weather patterns caused by El Niño.
The central bank's models show that severe drought conditions caused by climate events could push headline inflation up by 3-8 percentage points.
Read: The real cost of food is much higher than what you pay at the register
According to Shirobo, although farmers have succeeded in expanding their planted area compared to the previous season, yields are expected to be low and they are expected to suffer from heat damage and lack of rainfall.
Maize is one of South Africa's main crops and a staple food for millions of people. The country consumes most of the corn it produces domestically, and exports the surplus mainly to neighboring countries.
Read: Inflation picks up in January
In its latest forecast released at the end of February, the Crop Estimates Committee predicted white and yellow corn yields would decline by 17.2% and 7.7%, respectively, in the 2023-24 season. The overall production of maize is estimated at 14.3 million tons.
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He said the second production forecast for the 2023-24 summer crop, due to be released on March 26, was likely to show a worsening situation for corn.
South Africa's annual inflation rate rose to 5.3% in January, the first increase in three months from 5.1% the previous month. Food inflation, which has been the biggest contributor to the headline numbers, slowed to 7% from 8.5% in December.
Reserve Bank Governor Lesetya Kganyago told Bloomberg last month that the outlook for inflation was unstable, ruling out any rate cuts in the near term.
At its last rate-setting meeting, the central bank kept the benchmark interest rate unchanged at 8.25%, the highest level in about 15 years, and it has maintained this level since May.
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