Global inflation was generally moderating when the pandemic began, and the downward trend continued into the early months of the crisis. But surging prices since late 2020 have pushed inflation steadily higher. The average global cost of living has risen more in the 18 months since the start of 2021 than it did during the preceding five years combined. Food and energy are the main drivers of this inflation, as our Chart of the Week shows. Indeed, since the start of last year, the average contributions just from food exceed the overall average rate of inflation during 2016-2020. In other words, food inflation alone has eroded global living standards at the same rate as inflation of all consumption did in the five years immediately before the pandemic. Read more in the linked IMF blog post.

Billions of consumers around the world are seeing higher oil prices seep into the cost of living and wages. Filling the gas tank soon starts to cost more when crude prices climb, as does airfare, but higher energy costs also boost prices for all the products on store shelves. Workers seek higher wages to compensate for a loss in their purchasing power. These are what economists call second-round effects and they can in turn further raise prices. If this feedback is large and sustained, a wage-price spiral could emerge, with wage growth and inflation rising over an extended period. As the IMF's chart of the week shows, when overall inflation is already high, like it is now, wages tend to increase by more in response to an oil price shock. This finding, based on a study of 39 European countries, may reflect that people are more likely to react to price increases when high inflation is visibly eroding living standards. Read more in the IMF's linked blog post.

On 13 September, Agbiz and Transnet co-hosted a strategic workshop about the future of agro-logistics. Transnet’s strategic team shared their long-term plans to service the agricultural industry whilst the fruit, grain and timber sub-sectors gave insight into their critical logistics corridors and where the potential bottlenecks are. Agbiz also presented its export demand dashboard which maps out the overlaps in seasonality between different agricultural commodities. The core message conveyed at the workshop was clear, there is an avalanche of produce coming and innovative strategies are needed on the logistics front to keep pace and upscale South Africa’s capacity through partnerships. Flowing from the engagement, an interface agreement will be signed with structures that can take the detailed discussions forward. 

We continue to be surprised by the solid agricultural machinery sales. In August 2022, tractor sales were up by 3% year-on-year (y/y), with 792 units sold. Combine harvester sales were at 24 units, significantly up from 14 units sold in the same month a year ago. The generally healthy sales are a welcome development, as they indicate a primary agricultural sector still in a reasonably better financial condition and continues to invest in movable assets. Importantly, the machinery sales have maintained a positive trajectory since the start of the year and built on the solid momentum of the past two years. When farmers have a good year, allied industries benefit from spending the financial gains or the produce of the farming businesses. Agricultural machinery is one such industry that benefited from farmers' spending in 2020, 2021 and the first eight months of 2022. Agbiz chief economist Wandile Sihlobo discusses the latest data in the linked article.

We are about a month away from the start of the 2022/23 summer crop season. Farmers in the eastern regions of South Africa, which includes the eastern Free State, Mpumalanga, KwaZulu-Natal and Eastern Cape, will start planting by mid-October. This will primarily be summer grains and oilseed plantings. The Northern Hemisphere has experienced extreme heat and drought these past few months, prompting us to wonder if the Southern Hemisphere could experience similar extremes in the upcoming 2022/23 summer season. We are in a La Niña cycle, which means the typical weather conditions would be higher rainfall for Southern Africa, and drought for East Africa and South America. Therefore, extreme weather events could mean excessive rains in Southern Africa, while other regions would remain dry. Read more in the linked article by Wandile Sihlobo.

We are a month away from the start of the 2022/23 summer season. Farmers in the eastern regions of South Africa, which includes the eastern Free State, Mpumalanga, KwaZulu-Natal and Eastern Cape, will start planting by mid-October. This will primarily be summer grains and oilseed plantings. The Northern Hemisphere experienced extreme heat and drought these past few months, which prompted us to wonder if the Southern Hemisphere could experience similar extremes in the upcoming 2022/23 summer season. We are in a La Niña cycle, which means there is a possibility of above-normal rainfall for Southern Africa. Meanwhile, East Africa and South America could experience drought. This will have implications for the agricultural output in these regions. Thus, in this week’s segment, agricultural economist Wandile Sihlobo unpacks the potential impact of the forecast La Niña on agriculture in South Africa, and globally.

The massive rise in shipping costs over the last two years is only the last leg of logistic cost increases that impact fruit production and export profitability. Getting to the port usually requires diesel-powered transport, and diesel now costs over 100% more than early 2020. Keeping the cold chain going throughout the journey from farm to ship has become costlier too – with South African electricity prices massively outpacing inflation over the same two-year period. And with shipping lines enjoying a monopoly over routes and prices, farmers remain price takers. Fruit farmers are further constrained in that switching ‘product’ to take advantage of better market prices in some other category is not available as a short-term solution. Fruit is not an annual crop, trees or vines take years to mature, and once a farm changes its crop focus it can take years to re-establish production. Farmers have therefore no choice but to try to stay afloat financially for now, with the hope that 2023 will at least see further moderation in fuel and shipping prices, and fewer logistics delays on roads and at the ports. The positive and growing collaboration between Transnet and industry is starting to deliver welcome results for both sides, and steadily reducing the de facto ‘homegrown trade barrier’ that logistics had come to comprise. In the linked article, first published on FreshPlaza, the South African fruit industry investigates taking control of its own shipping.

A statistical report by the Food and Agriculture Organization of the United Nations (FAO) contains a subset of CCBS data and presents updated cereal supply and demand balances for all sub-Saharan African countries. It complements the information of the FAO/GIEWS Crop Prospects and Food Situation report and is published four times a year with the same schedule. This report is based on information available as of June 2022. Please click here to peruse.

While consumers' expectations of where prices are going are something that economists have been tracking for a long time, understanding how those expectations are formed provides valuable insight toward controlling inflation. New research by economists Carlo Pizzinelli (IMF), Peter Andre (Briq Institute), Christopher Roth (University of Cologne), and Johannes Wohlfart (University of Copenhagen) shows a surprising divide between what experts think and consumers believe drives inflation and other economic trends. Carlo Pizzinelli is the author of an article in the latest Finance and Development based on the study. In this podcast, Pizzinelli sits down with Journalist Rhoda Metcalfe to discuss how the collective consumer mind influences economic policy. Please click here to listen to the podcast.

South Africa currently has 142 open Foot and Mouth Disease (FMD) outbreaks in the previous FMD-free zone, comprised of three outbreak events. The outbreaks affect Limpopo, North West, Gauteng, Mpumalanga, Free State and KwaZulu-Natal. The movement of cattle in the whole country was temporarily suspended on 18 August 2022. In an effort to limit the negative effects of the disease as much as possible, the Minister has taken the decision to repeal the control measures relating to FMD as prescribed in the Government Notice No. 2075 of 10 May 2022 and Government Notice No.2391 of 18 August 2022. Movements are now allowed under certain conditions as outlined in Government Gazette notice 2465 of 8 September 2022. Movement restrictions remain on cattle, sheep and goats in three new Disease Management Areas (DMAs) in Limpopo, KwaZulu-Natal and Free State. Read more in the linked update report from the Department of Agriculture, Land Reform and Rural Development.

Port operations this past week were characterised by strong winds, vessel ranging, equipment breakdowns, and congestion. For example, in Durban, external truck breakdowns and system downtime caused congestion at the port exit gate, while the port helicopter went out of commission once more due to a service bulletin that needed to be carried out. In addition, TFR advised that the return to service of the second line on the Durban-Cato Ridge railway had been pushed back and was now only expected to return to service on 1 October 2022. Furthermore, Transnet reported that the Eastern Cape port engineers are expected to provide an update on the Moormaster at Ngqura next week, while an update on the second set of shore tensioners in Cape Town is also expected. Internationally, container port throughput figures for July confirm a reduction in global volumes, as the current situation reflects the heavily disrupted nature of the maritime and supply chain environment of late. Read more in the latest BUSA Covid-19 Cargo Movement Update.

The factual position that the South African dairy industry is confronted with, as shown by the information available up to the first week of September 2022, corresponds with the factual position described in the May 2022 edition of Summary of the Key Market Signals for the Dairy Industry. Simply said, the South African dairy industry is under severe pressure and in the immediate future, high input costs, weak consumer demand and a high level of uncertainty regarding future economic and political developments internationally and in South Africa, will most likely be the position in which the South African dairy industry will have to operate. Please click here for an abstract from the synopsis of this report for your information and comment. Should you wish to receive the full synopsis of the report, or the full report (which consists of 64 pages and 16 graphs and 21 tables), please inform yvonne@sampro.co.za accordingly.

The Citrus Growers' Association of Southern Africa, shares the latest news in the citrus industry in its weekly update - From the desk of the CEO. Please click here to peruse