• Business 7

Food prices boiling over

- 2023-03-22 00:00:00

Overall food inflation locally stood at 14.5% in February 2023, compared to 5.5% and 14.3% recorded in February 2022 and January 2023, respectively, according to the Namibia Statistics Agency (NSA).
Selected food items that recorded high inflation rates include fruits (26.8%), bread and cereals (22%), oil and fats (17.9%), sugar, jam, honey, syrups, chocolate and confectionery (12.5%), fish (10.1%) and meat (9.4%).
Overall, Namibia recorded an annual inflation rate of 7.2% in February 2023, compared to 4.5% registered in February 2022. In January 2023, inflation stood at 7%.
The two main contributors to the annual inflation rate for February 2023 were food and non-alcoholic beverages and transport.
"The elevated global maize price and recent Namibian dollar weakness have caused high food price inflation to persist. Based on the above factors, coupled with weaker domestic demand and higher interest rates, we forecast the average inflation rate to moderate to 5.6% this year from 6.1% in 2022," PSG said.
According to the Agricultural Bank of Namibia (Agibank), the mixed concerns of inconsistent rainfall and rising food inflation could worsen consumers’ affordability.
Food insecurity
"The Namibia IPC acute food insecurity report stated that the food security situation is projected to worsen between January and March 2023, corresponding to the last and second half of Namibia’s lean season, with 390 000 people forecasted to experience high levels of acute food insecurity."
The Kavango East, Kavango West, Kunene, Omaheke, Oshikoto and Otjozondjupa regions have the majority of people in food crisis. Moreover, the tight labor market, high food and fuel prices have further derailed food security, Agribank pointed out.
Looking at the zones, Zone 1 (Kavango East, Kavango West, Kunene, Ohangwena, Omusati, Oshana, Oshikoto, Otjozondjupa, and Zambezi) recorded the highest inflation rate of 7.6% in February 2023, followed by Zone 3 (//Kharas, Erongo, Hardap and Omaheke), which recorded 7.3% and Zone 2 (Khomas) 6.7%.
"More than 9 000 prices of goods and services are collected monthly from more than 900 retail outlets in eight localities. The analysis of the average retail prices for some of the basic products consumed by the households for the month of February 2023, indicates that chicken, frozen assorted pieces (1.5kg), consumers in Zone 2 paid the lowest price at N$84.77, while the highest price was observed in Zone 1 at N$111.93. For a brown bread, consumers in Zone 3 paid the least at N$13.32, while consumers in Zone 2 paid the highest at N$14.19," NSA said.
The regions in Zone 1 are the ones considered to have the majority of people in food crises.
Trade
The Bank of Namibia (BoN) revised the economic growth forecast for 2023 upwards to 3%, from the 2.7% initially projected in December 2022.
Risks to domestic growth are predominantly in the form of monetary policy tightening globally and high costs of key import items that are likely to remain for the entire forecast period, the Bank of Namibia said. In February, the BoN increased the repo rate by 25 basis points from 6.75% to 7%, hiking the prime lending rate from 10.5% to 10.75%.
Furthermore, the war between Russia and Ukraine is likely to continue for longer than expected, and so are the high prices for affected commodities for which Namibia is a net importer, including fuel, wheat, and cooking oil, the central bank added.
According to the Namibia Statistics Agency trade statistics for February, Namibia sourced most of its imports from neighboring South Africa. Namibia’s import bill stood at N$10 billion. Analysts warned that the weaker Rand is likely to inflate the import bill.
Fin24 recently reported that South Africa posted a current-account deficit for the first time in three years in 2022 as imports increased and power shortages and rail constraints curbed exports, heightening the nation’s vulnerability to external shocks.
The balance on the current account, the broadest measure of trade in goods and services, swung to a deficit of 0.5% of gross domestic product, or R31.8 billion, from a surplus of 3.7% in 2021. It’s the first annual shortfall since 2019 and comes after coronavirus restrictions and global supply-chain disruptions suppressed imports.
Ripple effects
According to Simonis Storm, "We see a continued rise in food prices overall for 2023 and this is likely the biggest upside risk to our inflation forecast."
Loadshedding in South Africa is costing Tiger Brands about R1.5 million per day. Famous Brands which operates 2 850 restaurants and includes brands such as Steers, Debonairs, Fishaways, Wimpy and Mugg & Bean amongst others, guided that fuel and food price increases will lead to further menu price increases for the remainder of 2023.
High diesel and logistics costs will increase consumer prices in Namibia even further as products are transported mainly by trucks from South Africa to Namibia.
It is therefore worrisome to see certain entities recording double digit inflation, especially Oceana and Tiger Brands which manufacture basic food items for Namibian households. "This supports our notion that food prices in Namibia are likely to remain on an upward trend throughout 2023."
With Namibia importing about 80% of its annual food requirements, the outlook on food prices is very bleak for 2023, Simonis Storm pointed out.
In addition, voluntary trading updates and statements by various Johannesburg Stock Exchange-listed entities give some insight into future inflationary pressures. Trading updates ranged from September 2022 to January 2023 and varied across the different entities we looked at. These entities experienced an average 11% increase in internal inflation compared to the same period last year, indicative of rising costs from loadshedding, higher interest rates and high fuel prices, among others. At the same time, trading updates provide worrisome increases in certain operational costs that could lead to higher inflation in coming months. Dischem indicated that its diesel costs have increased by 54% to R36 million between September 2022 and February 2023. Food producer Tiger Brands which manufactures brands such as Jungle Oats, Tastic, All Gold and Mrs H.S. Ball’s Chutney, among others, spent R27 million on backup generators during the September 2022 to January 2023 period.
The importance of analysing the internal inflationary pressures of these listed entities is due to the fact that these companies operate franchise businesses throughout Namibia. So, the price increases that these companies will have to enforce due to rising cost pressures will ultimately lead to higher prices in Namibia, Simonis Storm said.
Rainfall
According to Agribank, poor rainfall performance in February 2023 was recorded in most parts of the country, with few exceptions. Low to no rainfall was observed over Kunene, Omusati, Oshana, Ohangwena, Oshikoto, Khomas, Omaheke, Erongo, Hardap and //Kharas regions.
Cumulative rains between October 2022 to February 2023 indicate below normal rainfall across most parts of the country. This is mainly due to the long-dry spells experienced, reflecting a departure from the seasonal outlook. This suggests that normal to above normal rainfall projections may not hold for the remainder of the rainy season (March to April 2023), Agribank said.
Given the rainfall performance since the beginning of the season, the country faces a risk of low water supply and poor pasture conditions.
This represents a key risk to the agriculture sector, rangeland recovery and livestock production. Furthermore, delayed planting in areas where crop production is largely under rainfed and dry conditions are major concerns, negatively impacting crop yields and threatening food security, Agribank added.
Simonis Storm noted that farmers cannot use irrigation systems at full capacity, and so shortages in various horticulture products are forecasted. This will likely add inflationary pressures to Namibian food prices in the coming months. Even if farmers use diesel generators to run irrigation systems, this will increase their costs and, so food prices for consumers. - [email protected]