Interest rate hike puts more strain on system
Beef player urges value chain to remain committed to producing affordable food to ensure business sustainability
The SA Reserve Bank recently increased the country’s interest rate by 50 basis points, bringing it to 8.25%, the highest level in 14 years.
According to Roelie van Reenen, supply chain executive at Beefmaster Group, this is yet another blow for consumers who are under financial pressure, with ripple effects for all stakeholders, especially against the backdrop of food price inflation having reached double-digit figures, peaking at 14% in March 2023.
“Increasingly consumers have less money to spend. With financial budgets under pressure, they are making significant trade-offs in their shopping choices due to financial constraints. This is impacting the agricultural and beef value chains,” says van Reenen, adding that beef prices have declined, but the price reduction has not yet reached the consumer.
He says this is because producers are operating under extremely difficult circumstances and the situation is likely to remain challenging for the remainder of the year.
“It is a fact that we have to tighten our belts and brace ourselves for a prolonged period of challenging conditions,” says van Reenen. “I anticipate at least six to eight months of tough times ahead. However, we must remain optimistic and focus on producing cheaper, smarter, and more market-oriented products to protect our industry.”
Additionally, herd sizes have decreased, and there has been a loss of export markets due to insufficient protection against diseases like FMD, leading to an oversupply of beef in the local market. The energy crisis further complicates the task of aligning production with consumer affordability and demand. Retailer Pick ‘n Pay for example recently announced it has spent R522m in total on diesel and a net amount of R430m when its electricity savings initiatives are taken into account.
“While it is a positive step that the South African Revenue Service (SARS) recently extended the diesel refund to manufacturers of foodstuffs who are struggling given the power cuts, we hope to see these measures materialize into real relief,” says van Reenen.
The decline in the value of agricultural commodities, particularly grains, has added to the strain. Global markets are bordering on experiencing a recessionary period, and this downturn has affected the consumption of grain, with Southern American producers offering discounts just to move their surplus stock.
“The reality against this environment is that agricultural players – farmers, food producers, industry stakeholders – must adapt and produce a cheaper product to cater to price-sensitive consumers. Failure to do so could have dire consequences for the industry.”
He suggests that producers need to work closer with their clients to understand what they want and need in the current environment and then tailor offerings accordingly. Van Reenen also emphasizes the importance of collaboration and coordination in disease control management and animal protection measures. Clean and well-managed operations within immediate communities will help build a reputation for quality products.
“Work with those who have skin in the game and ensure they have a vested interest in the industry’s success and shared accountability,” concludes van Reenen.