South Africans should prepare themselves for the biggest price hike in the cost of red meat later this year as inflation and the drought take their toll, warn experts.
Although red meat prices are stable at the moment, consumers should prepare for double-digit price hikes by trying to pay off debt as the increase will have a knock-on effect on their budget.
Dawie Roodt, the chief economist at the Efficient Group, said prices will rise between 50 and 60 percent, which will have a devastating impact on consumers.
“The prolonged drought is the major factor, but there are also other factors at play, such as the massive increase in the price of maize, which is the staple food for fattening beef before going to market.”
Neil Roets, the chief executive of debt management firm Debt Rescue, said in addition to the price of red meat, consumers should also prepare for an 18 cents a litre increase in the price of petrol, which in turn will have a knock-on effect on the prices of other commodities.
“We are on the eve of a perfect storm which is going to affect everybody, but especially the poorest of the poor who spend more than 50 percent (of income) on food. While many people will be going hungry, there is no prospect of famine, which is now being experienced in other parts of Africa thanks to the El Niño phenomenon.”
Roets said although South Africa has one of the best developed social support structures in Africa with a variety of grants to the poor, the bottom line is that the grant money will only pay for the basics.
“The food shortages caused by the severe drought earlier this year has worked its way through the economy and the prices of all food have risen substantially. We can expect further increases as the country will have to import large amounts of maize and wheat, where producing areas were particularly hard hit.”
Clif Johnston, the vice-chairman of the South African National Consumer Union (Sancu), said the union expects food prices to increase “abnormally” over the coming months, and price increases are always bad news to consumers.
Johnston said consumers should try to pay off as much debt as possible in preparation for the increases, as it will be far more beneficial than using the money to stock up on red meat at current prices.
“Even worse would be to borrow money to hoard red meat, especially as interest rates are also expected to rise. Every time consumers reduce their debt, they free up cash every month that can be used to pay the rising prices.”
However, the SA Feedlot Association’s executive director, Dave Ford, said the price of red meat was determined by supply and demand, and the price consumers were willing to pay could not be predicted by any high degree of accuracy.
FNB’s senior agricultural economist, Paul Makube, said South Africa was entering a seasonal decline in demand and currently supply was exceeding demand.
“Therefore, prices have softened across the board. However, the rebound is expected around August and September, due to increased demand for calves as producers rebuild herds and feedlots stock ahead of the December festive season. While supplies are expected to tighten, the demand side in terms of the consumers financial health should be considered.”
Makube added that the South African Reserve Bank (SARB) was on a tightening cycle and higher interest rates, amidst a weak economy, would dampen consumer spending.
He said price increases for red meat could range from 9 percent to 15 percent for the last quarter of the year.
“Inflation will remain elevated, making it difficult for the Sarb to pause or cut rates. The prices of substitute protein sources such as poultry and pork may be lifted as consumers switch to the more affordable meat.
“The import bill might increase further should the rand continue to gain ground as importers take advantage of the lower international prices.”
Wendy Monkley, head of marketing at DebtBusters, said the firm had seen a major uptick in the number of consumers enquiring about, and signing up for, debt counselling.
She said last month has been a tough month with increases in fuel, electricity, interest rates, sin tax, food and the general cost of living.
“When we assess the debt situation of our clients prior to debt counselling, we can see that many of them needed all if not more than their monthly salaries just to pay their debt repayments, leaving little or nothing for living expenses.
“That is why they start missing payments. Eventually ‘robbing Peter to pay Paul’ is the only way they can free up cash flow for buying food and paying rent.”
Roodt added it was likely the Reserve Bank would increase the repo rate by 100 points during the course of the year to combat inflation, which could reach 7 percent by the end of the year.
“I would not be surprised if they increase it by 125 basis points, because inflation in general and food inflation in particular has become a long shadow hanging over the government.”
Roodt said the fact that most consumers owed more than 75 percent of their monthly salary cheques to financial institutions showed how dire the situation was.