Government’s role in the cost-of-living crisis

DENENE ERASMUS investigates what is driving South Africa’s high food prices

Food price hikes in South Africa have outpaced headline consumer inflation for more than a year, and even as global food price increases are slowing down, local prices continue to rise.

The most recent inflation data published by Statistics South Africa shows that food inflation continued to increase in February, reaching a level of 13.6 per cent year-on-year.

Meanwhile, the global food price index compiled by the Food and Agriculture Organization of the United Nations has been on the decline for the past 11 months.

In terms of rands and cents, the cost of a basic food basket for four people, as defined by the Pietermaritzburg Economic Justice and Dignity Group, increased by almost 12 per cent over the past year to just short of R5 000.

Mervyn Abrahams, the group’s programme co-ordinator, says that while the prices of some products included in the basket, such as sunflower oil, have decreased from record highs seen at the start of 2022 – when global commodity prices reacted strongly to Russia’s invasion of Ukraine (the countries are important exporters of cereals and sunflower oil) – prices for other staple products have stayed consistently high. “The price of maize meal has increased by 26 per cent over the past year and even cheaper cuts of chicken are now getting more expensive.”

Against the grain

Grain prices are decreasing globally, but Marlene Louw, senior agricultural economist at Absa, says that South Africa is not necessarily going to benefit since the weakening of the rand has eroded any gains. Furthermore, the high prices still seen in the local market for maize are due to the lingering effect of the November and December price levels. “There is a roughly four-month delay between a decrease in commodity prices and

FRESH PRODUCE ITEMS WITH HIGH YEAR-ON-YEAR INFLATION

• More than 30 per cent: Onions, peppers

• Between 20 and 30 per cent: Spinach, cabbage, cauliflower, pumpkin, carrots, potatoes, apples and pineapples

• Between 10 and 20 per cent: Lettuce, broccoli, beetroot, mushrooms, sweet potatoes

Source: Bureau for Food and Agricultural Policy the effect of this on retail food prices,” Louw explains. She adds that local food prices will remain “sticky” for the rest of the year as farmers, food manufacturers and processors, and retailers continue to grapple with the effects of load shedding on their operations. “We expect to see less output from farmers and lower processing volumes at places such as abattoirs. The lower volumes combined with higher costs caused by having to rely on more expensive sources of electricity, such as diesel-fuelled generators, will continue to place upward pressure on food prices.”

War and price

The risk posed to South Africa by the war between Russia and Ukraine is not only on the food import side, but also on exports. Agribusiness consultant Dr John Purchase explains that the South African government’s stance on Russia could jeopardise trade relations with regions such as Europe and the United States.

“This could prove disastrous for exporters. Both the Unites States and the European Union, which represent important markets for agricultural exports from South Africa, have already indicated that they ‘take a dim view’ of South Africa’s position on Russia,” says Purchase, who previously served as CEO of the Agricultural Business Chamber.

South Africa abstained from a vote condemning Russia for the war in Ukraine in the United Nations General Assembly. Instead, in recent months, government has opted to strengthen bilateral ties between the two countries.

Purchase notes that authorities in South Africa now also face a diplomatic dilemma: the country will host the BRICS (Brazil, Russia, India, China and South Africa) bloc later this year, which might be attended by Russian president Vladimir Putin. “However, the International Criminal Court (ICC), to which South Africa is a member, has issued a warrant of arrest for Putin, for committing war crimes. As a member of the ICC, South Africa is obliged to act on the warrant if Putin sets foot on South African soil, but the government seems disinclined to arrest a sitting head of state while in the country.”

Concern among exporters is growing that government’s diplomatic stance on Russia will hurt our country. Purchase adds that the African Growth and Opportunity Act, through which South Africa’s products can obtain tariff free access to the United State, is up for review later this year. “Already there are indications that South Africa will be relegated from the agreement [because of its stance on Russia].”

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