DURBAN – THE quickly rising agricultural producer value inflation (PPI) resulting in hovering meals costs poses has positioned meals producers in a decent spot about whether or not to soak up these value will increase or try to cross them on to financially-constrained customers, says RMB.
John van Tubbergh, the sector head for Client, Meals and Agri at RMB, stated yesterday that many massive meals producers had cited hovering costs of key agricultural merchandise used as inputs within the manufacturing of primary client foodstuffs – as an actual risk to margins.
Agricultural producer value inflation accelerated to 12.3 p.c year-on-year in November 2020, earlier than settling at a nonetheless excessive 7.2 p.c in March 2021.
Van Tubbergh stated digging deeper into the constituents of this determine, the inflation charges for cereals and different crops, in addition to dairy merchandise have been 17.2 p.c and 12.6 p.c respectively. He stated producer value inflation for stay animals and animal merchandise was 9.8 p.c.
Mixed cereals, dairy and animal merchandise made up practically 60 p.c of the agricultural producer value basket. Worth pressures on the agricultural stage are additionally starting to drive manufacturing prices up.
From subdued ranges of about 4 p.c final 12 months, manufactured producer meals value inflation has quickened from 6.9 p.c year-on-year in February to eight.1 p.c in March. That is stated to now fee properly above CPI meals value inflation which meant gross margins of meals producers have been getting squeezed.
“Amid a nonetheless weak economic system with households financially beneath pressure this leaves meals producers with some tough selections to make. Meals producers have already responded by slicing inside prices and optimising processes with a purpose to assist cut back the strain on margins. As an example, we’re more and more being requested by shoppers to hedge in opposition to value will increase ensuing from hovering agricultural commodity costs,” stated Van Tubbergh.
Final week the Family Affordability Index additionally reported that the typical value of family meals basket in South Africa elevated by 3.9 p.c, or R159.37, in April to R4 198.93 in comparison with a month earlier – the best stage since September 2020.
In a separate report launched final week, analysis by TransUnion discovered the variety of South African customers in households whose revenue was at present negatively impacted by the Covid-19 pandemic had dropped 20 proportion factors because the week of November 30.
However Work-from-home dynamics had given meals producers some wiggle room.
Ettienne Le Roux, the chief economist at RMB, stated as a consequence of Covid-19 and up to date lockdown restrictions, many customers have been staying at dwelling and consuming extra primary groceries. Profiting from this elevated demand meals producers have been capable of increase promoting costs.“