Poor hardest hit by SA’s food-price inflation - report

As consumers continue to grapple with high food prices triggered by the recent drought and the ailing economy, milk will soon be added to their list of costly staple foods. Dairy farmers are currently facing production shortages and will likely run into supply issues in the coming months. Picture: David Ritchie

As consumers continue to grapple with high food prices triggered by the recent drought and the ailing economy, milk will soon be added to their list of costly staple foods. Dairy farmers are currently facing production shortages and will likely run into supply issues in the coming months. Picture: David Ritchie

Published May 20, 2016

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Johannesburg - A report by Standard Bank has revealed that low income households spend as much as 59 percent of their expenditure on food, making these households more susceptible to food inflation.

The report, titled Consumer Income Trends, claimed that this was in contrast to affluent households that spend more on transport (30.1 percent), larger than that spent on food, and included expensive modes such as airlines, because of affordability.

The report is the third in the seven-part series of special reports by Standard Bank economist Zaakirah Ismail using data from the Bureau for Market Research to be issued over the coming weeks on South African consumer behaviour and trends.

Main source

Standard Bank found that 62.3 percent of households fell within the poorest income bracket (below R86 000 per annum). These households are predominantly dependent on salaries and wages as the main source of income (64 percent), and 24 percent of them rely on the government for income.

“Non-durables comprise 44 percent of expenditure, services 37 percent, durables 9.5 percent and semi-durables 9 percent of household expenditure. About 60 percent of household spending is on essential items and 40 percent on non-essential items,” the report said.

It said the largest components of household expenditure was on food, beverages and tobacco (20 percent) and contributions, which refers to instalment type payments and includes medical aid, insurance and pension contributions (29 percent). Transport, including petrol and purchases of new vehicles, comprised 15 percent of aggregate expenditure.

Health accounted for 6 percent, and housing, electricity, gas and fuels for 5 percent of aggregate household spending.

“Education is only 3 percent of spending. This includes primary, secondary and tertiary education,” the report said.

The bank said the data was unfortunately too aggregated to differentiate education expenditure.

The study found between 22 percent and 40 percent of spending by middle income households (R86 000 to R1 481 000 per annum) is on non-durable goods and between 5 percent and 10 percent on durable goods.

Spending on services comprised a similar percentage of each household budget – between 25 percent and 33 percent of household spending. Spending on semi-durables accounts for almost 9 percent.

For low income groups, transport expenditure was the second most dominant item in the basket after food. Standard Bank said this comprised between 11 percent and 12 percent of the group’s budget and would be relatively affected by oil prices and fuel levy hikes, and currency weakness.

Middle income groups allocated 7 percent to 18 percent of their budgets to food – at least 10 percent lower than the low income group. “There is an exposure to high food inflation, but not as much as the two low income groups.”

Upper income groups’ largest spend was 30.1 percent on the purchases of new vehicles and access to more expensive modes of transport, such as airlines, because of affordability. Standard Bank said: “If one excludes petrol, transport expenditure increases the further one climbs up the income brackets.”

Recreation

It said there was an 8.8 percent budget allocation to recreational activities. This is the highest of any income group.

Meanwhile, Arthur Kap, an economist at Sanlam Investments, said yesterday that the inflation rate for the poor was volatile, because a high proportion of their expenditure was on food.

“Food prices, in turn, tend to be volatile because they reflect changes in soft commodity prices, for example, wheat and maize, the rand and other factors such as current drought conditions.

“Historically, when food prices have spiked, the inflation rate for poor consumers has been higher than rich consumers.”

BUSINESS REPORT

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