Why SA’s food prices are so high, and what we must do about it

Cooperation between Southern African countries will help increase their resilience to global events that affect food prices. Picture: Pixabay

Cooperation between Southern African countries will help increase their resilience to global events that affect food prices. Picture: Pixabay

Published Sep 28, 2023


South Africa and its regional neighbours must develop their own inclusive food markets if they wish to weather the global shocks that have sent food prices skyrocketing.

Record-high food inflation has been plaguing consumers for the past three years, but none are feeling it more than the poorest households.

While many of the factors behind the price hikes are out of the control of local food producers, there are things that Southern African countries can take into their own hands.

Moderating a plenary session at the 17th annual Competition Commission Conference on Thursday, James Hodge, chief economist for the Competition Commission of South Africa (CCSA), says food inflation has not just been at record high levels in recent years, but has hit the poorest consumers the hardest.

Since Covid began, there has been an increase of about 34 percent in the price of food, with some like vegetables, oils, fats, breads, and dairy seeing much higher levels of inflation.

“For the poorest 10 percent of households, food makes up 40 percent of expenditure compared to 5 percent for the top 10 percent of households. Inflation has had a completely lopsided effect, affecting the poorest consumers most.

“We know this is partly a result of many shocks like Covid, supply chains, and the war in Ukraine, but there have also been a lot of climate change events. Global markets have been severely affected by floods and droughts in different parts of the world,” he says.

While many people also believe that the rising cost of producing food in South Africa is causing the prices to increase, Wandile Sihlobo, chief economist of the Agricultural Business Chamber of South Africa (Agbiz), explains that this is not entirely accurate. People often talk about the cost of inputs – such as fertilizers and seeds, and link these with the cost of the food item or commodity, but there is not really a good direct relationship there.

“The only way a farmer can interfere with, or influence, the price is by limiting how much they produce, not by transferring the price of the inputs.”

He says this discussion comes up a lot in South Africa because almost all of our inputs are imported.

“The farmers have to take those prices on and have to cover themselves by making sure they have better yields and position their trading in better times. So there is no direct link between the cost of inputs and the price.

“Before Covid, we started to see prices rising; maize prices rocketed to record levels. But there were three major drivers in the system for some time.”

The first, Sihlobo says, is that China was buying a lot of grain in the market. Heading towards Covid, they bought a lot of soybeans and maize, and that had a “major impact” on global commodity prices. In South Africa, when we think about our oil seeds and grains, we are directly linked to what happens in world markets.

The second factor was the drought in South America that had been going on for roughly four years.

“This is an important story because in global agriculture, 50 percent of soybeans are from Brazil and Argentina, and 15 percent of maize is from those countries, so supply constraints were feeding into global commodity prices.”

Then, thirdly, he says, the Russia-Ukraine war came into play too, but that was at a much later stage.

A solution to the effect of global events, however, could be minimised if we create more inclusive regional value chains that can contribute to the resilience of our value chain in the long run, states Dr Reena Das Nair, senior researcher at the Centre for Competition, Regulation, and Economic Development (CCRED) at the University of Johannesburg.

“Developing food markets that can replace our imports of inputs or imports of processed foods makes us a little more resilient to global shocks.

“We also really need to think about this in the context of climate change. South Africa is a water-scarce country and so we cannot grow certain foods or crops given this situation. But other countries in the region have more suitable climatic conditions and perhaps a bit more water certainty and can grow these crops.”

Therefore, thought has to be put into developing a regional value chain where these primary products are beneficiated into value-added food products within the region. Perhaps this can replace some of the imports.

“So there are opportunities but these require coordinated policy and efforts to develop these value chains. And very importantly, this requires competitive markets as, without them, other players and small and medium enterprises cannot produce products at margins that are sustainable.”

Das Nair says we need to think about how we reduce costs in regional value chains, with one aspect being the role of transport networks between the region’s countries.

“If there are competition issues in cross-border transport then we are going to have higher costs of moving products at different levels and different stages of the value chain from one country to another. So we need to deal with competition issues within transport and logistics.”

Further down the food supply chain, she says one cannot talk about food markets and not talk about the large players in processing and retail. How do suppliers get products to the end-consumer as, often, the large supermarket chains are the gatekeepers between suppliers and consumers?

“In the Southern African region, the South African chains are quite dominant and spreading into the region. We need to think about how to work in a cooperative way with some of the large retailers to try get them to encourage greater participation in food value chains as well as open up their shelves to smaller players and support them through supply development programmes.”

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