Agricultural production inflation skyrockets

Agricultural price inflation rocketed to 10,7% annually in September.

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Inflation at the farm gate (agricultural price inflation) rocketed to 10,7% annually in September.

Statistics SA (Stats SA) recently released September’s producer price inflation (PPI), which measures inflation at the level of production. PPI for all industry sectors rose from an annual rate of 9,6% in August to 10,5% in September.

Inflation for manufactured food (including food processors) came to 8,8% in September. The hike in farm gate inflation can be ascribed to an annual rise of 26,7% in the price of grain and a rise of 13,2% in the price of live animals.

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This correlates with the factors that forced food prices for consumers higher. According to Carmen Altenkirch, economist at Nedbank, there were three big drivers behind farm gate inflation. “Firstly, the value of the rand. We import a fair amount.” Between the end of September 2010 and the end of September 2011, the rand declined in value from R6,96 per dollar to R8 per US dollar – a decrease of almost 15%.

Secondly, global food prices are up. This correlates with the global food price index of the UN’s Food and Agricultural Organisation. The index hit a record high in February and although prices declined to a lesser extent, it still hovers close to the record. Lastly, local price pressure. “Local commodity prices are nearing import parity prices,” Altenkirch said.

The outlook for PPI, and farm gate inflation, remains high. “We expect PPI to remain relatively elevated, probably above 6%, for some time and any further depreciating correction of the rand could limit the extent of disinflation,” said Adriaan du Toit, economist at Standard Bank.

Fuel and energy prices also play a role in the outlook for farm gate inflation. According to Altenkirch, the price of crude oil hovers between US$110 and US$120. “A lot depends on the European (debt) crisis,” she said. “If (economic) growth slows rapidly, the price (of crude oil) could edge downwards to US$100 per barrel.” She said her outlook for the petrol price is R11/l in a year’s time.

Altenkirch’s prediction is supported by the rise in crude petroleum and natural gas prices. According to Stats SA this component of the PPI rose by 30,1% annually in September. – Jaco Visser