S. Africa fails to capitalise on low global ag commodity prices
2015 and the start of this year has seen a drop in global agricultural commodity prices, yet South…2015 and the start of this year has seen a drop in global agricultural commodity prices, yet South Africa, which is still suffering the effect of drought, has failed to capitalise on the slowdown due to the weakness of the Rand.
Paul Makube, Senior Agricultural Economist at FNB says the supply and price of agricultural commodities across the globe has been volatile in the past year. International prices of most agricultural commodities trended lower for most of 2015 before rebounding slightly in the last two months.
He says that during times of domestic supply deficits, imports are supposed to fill the gap. However, this has not been the case for South Africa as agricultural imports became expensive due to the weakening Rand.
The short to medium term outlook for food inflation remains biased to the upside due to supply constraints and a weaker Rand which makes imports more expensive. Risks to the Rand outlook include the aggressive Fed rate hikes, downgrade by credit rating agencies and the deterioration in the domestic socio-economic situation.
“In the longer term, agricultural production is expected to bounce back in 2017 and it is then that we could realise a significant moderation in food prices particularly grains. Fruit and vegetable prices could still ease towards the end of the year should the improved weather outlook materialise in the next rainfall season,” concludes Makube.