Rising Food Price Inflation in South Africa Causes Concern For Consumers

Food Price Inflation
Photo by SWISS IM&H

The continued sharp increases in food price inflation from 3.4 percent in 2019, to 4.6 percent in 2020 and to an estimated 5.4 percent in 2021, remains a concern in South Africa.

This is due to its inflationary role in the general Consumer Price Inflation (CPI), and its potential to exacerbate the ongoing economic and social impact of COVID-19, especially with regard to food security in poor households.

Some of the drivers of food price inflation are state-administered electricity tariff increases (+15 percent); increases in minimum wages (+16 percent); allegations of excessive price increases by some retailers; and changing consumer shopping trends.

Food Price Inflation
Photo by SWISS IM&H

South Africa has also been impacted by higher crude oil prices (+30 percent in 2021) and international commodity prices such as sunflower oil, grains, and meat. While Post expects that U.S agricultural exports may rebound in 2021, the increase in food inflation may compound the challenges being faced by U.S. agricultural exports.

South African Food Inflation and Consumer Price Index (CPI)

Food Price Inflation
*Estimate based on year-to-date figures up to February 2021.
Source: Statistics South Africa, National Agricultural Marketing Council (NAMC)

Key Drivers of Food Inflation in 2020 and 2021

The sharp increase in food inflation is due to both international and domestic factors. Domestic factors that have contributed to the rise in prices are the increases in food production costs, mainly due to the state-administered electricity tariff increases (+15 percent) and increases in minimum wages (+16 percent).

Other domestic factors include allegations of uncompetitive and excessive increase by some retailers, changing consumer shopping trends (stock-piling), and domestic supply-demand factors for some commodities.

The international factors that have contributed to the increase in food inflation are higher prices for crude oil (+30 percent in 2021) which translates to high food production costs and growth in international commodity prices such as sunflower oil, grains, and meat.

According to the Bureau for Food and Agricultural Policy (BFAP), the increase in food inflation in March 2021, was driven by oils and fats which rose by 13.4 percent, followed by confectionary (7.4 percent), milk, eggs and cheese (7.2 percent), meat (6.7 percent) and cereals (4.9 percent).

The substantial increase in the global price of oils and fats is due to strong demand, particularly from China, which is rapidly rebuilding its pig herd which had been reduced by the African Swine Fever.

Strong global maize prices have also been driven by firm import demand from China. The increase in milk and cheese prices domestically was driven by an upward trajectory in global dairy prices.

Some commodities such as eggs, flour, sugar, confectionery products, vegetables, and fruits increased in prices due to consumer stockpiling and changes in demand preferences as more consumers working from home.

Avian Influenza outbreaks in the Gauteng and North West provinces in South Africa also severely constrained egg supply, leading to sharp price increases. Meat prices are higher based on steady export demand and tight domestic supplies of red meat.