Patrick Kelly – Executive manager for Price statistics, Statistics South Africa, explores the true cost of ‘Braai Day’.

South Africans love meat. This is obvious from our cultural affinity for a braai or ShisaNyama. Many celebrated ‘Braai Day’ on this week’s Heritage Day holiday. This importance is also evident from the prominence of meat products in our two key inflation indicators, the Consumer and Producer price indices (CPI and PPI). Just under a third of household food spending goes to meat – as reflected in the CPI, whereas it makes up 17% of the food sales of South African manufacturers – as shown in the PPI.

The August PPI showed average annual inflation of 7,2% for final manufactured goods, compared to 8% in July. Headline CPI registered at 6,4% in August – slightly higher than July’s 6,3% reading. The PPI tracks price changes through the production value chain including agriculture, mining, electricity and water, and manufacturing. The headline PPI is for final manufactured goods, which are those products which typically are not processed any further.

Meat inflation in both the PPI and the CPI are in double-digit territory, with consumers paying an extra 10,1% and producers charging an extra 11,1% in August compared to a year previously. Trends in the PPI for products such as meat tend to be strong leading indicators for the price increases that consumers will eventually experience.Taking beef as an example, it is possible to construct a value chain starting with a live animal that must be fed with grain- (maize) based feeds. The live animal is sold at auction to an abattoir, which slaughters and skins the animal, and then sells the carcasses to butcheries or supermarkets to prepare different cuts for customers. While there are other costs incurred along the way such as fuel, electricity and labour costs, our analysis shows that inflation rates for animal feeds (lagged by one month) as measured in the PPI generally predict 67% of changes in the retail price of beef. Price changes for live animals and carcasses explain more than 80% of consumer inflation for beef.

The annual rate of inflation for cattle feeds has dropped from a peak of 10% in March this year to a low of 2,6% in August. However, annual farmgate inflation for live cattle shows a large annual increase of 21,3%.

The other use for cattle is to provide milk which is then turned into a variety of products including cream, yoghurt and cheese. PPI figures show that unpasteurised milk sold to dairies has increased by 12,2% over the past year, similarly manufactured milk products have increased by 12,7% and retail prices by 12,9% in this period – the highest since November 2008. Specifically, fresh full cream milk shows inflation of 17,8% in the manufacturing PPI and 15,7% in the CPI.

Cattle show some seasonal pricing variations, with farmers selling off more at the beginning of winter when free range grazing is in short supply. The restocking at the end of winter, aided by low feed inflation, may account for some shortage in the market and a consequent uptick in prices. These seasonal fluctuations are not evident in the average CPI indices, which increased 11% in the year to August, suggesting that retailers smooth the increases passed to the consumer. A deeper analysis shows that large supermarket chains currently have much lower inflation rates for beef, compared to independent or owner-managed stores.

It remains to be seen whether the monthly increases between July and August of 7,6% for live cattle, 3% for beef carcasses and 1,2% for retail beef products sustain themselves in coming months, or whether lower animal feed prices will exercise a moderating influence.

Download full CPI publication here

Download full PPI publication here

First published in The Rapport, 28 September 2014