Red flags for food security and pricing in South Africa: PwC

 ·28 Jun 2023

South Africa’s food supply chain is under immense pressure largely due to load shedding, says financial services firm PwC.

In its latest Economic Outlook report, the company said that adverse impacts of rolling blackouts are being felt particularly hard in agriculture – for example, in the poultry industry, where farmers are struggling to access enough electricity to achieve optimal output.

The group cited the Global Food Security Index 2022 which ranked South Africa 52nd out of 113 countries for the availability of food. PwC said that if things were to continue as they are, the country’s ranking could be negatively affected.

Farmers are not the only ones feeling the pain of load shedding; retailers at the other end of the value chain are spending billions on diesel generators to keep fridges cool.

For example, major retailer Pick n Pay has spent R522 million over the course of last financial year, and Spar racked up a bill of R700 million on diesel in just six months.

“This, in turn, divests their investment spending away from, e.g. opening new outlets. Some components of the food value chain are also experiencing a decline in water availability due to the (often interrupted) power needs of such systems,” reported PwC.

The local food value chain is being disrupted in both supply and cost.

PwC said that the real risk is that retailers are not able to consistently source food supplies to supply communities at affordable prices.

“Not surprisingly, food and non-alcoholic beverage inflation surged to a 14-year high in March 2023. During the month, the Stats SA food basket was 14.0% y-o-y more expensive.”

“Most recently, food and beverage inflation was measured at 12.0% y-o-y in May, with the staple ‘bread and cereals’ category being 18.1% y-o-y more expensive. The cost of imported food was a notable factor: grain mill products cost 34.9% y-o-y more in April,” said PwC.

Inflation has also taken its toll on food goods not just in South Africa but also abroad in key trading partners such as the UK which is sporting a cost inflation increase to 18.3% in May.

PwC said that the outlook for winter is that crops are under pressure from El Niño, a phenomenon of rising air temperatures above the Pacific that affects weather patterns across the globe and contributes to higher temperatures in Southern Africa, as well as disruptions to irrigation.

This perspective is echoed by the South African Reserve Bank (SARB) which stated in May that risks to inflation are assessed to the upside and the outlook for winter crops such as wheat, barley and coats are under pressure.

“About a third of South Africa’s farming income is directly dependent on electricity-consuming irrigation, and about half of the wheat crop is under irrigation. Considering that South Africa produces around 60% of its wheat needs (and imports the rest), about 30% of the country’s wheat supply is vulnerable to the impacts of load-shedding on irrigation,” said PwC.

“In addition, the looming El Niño weather pattern could result in below normal winter rainfall conditions in the southwest part of the country where half of the wheat production takes place,” said PwC.

Load shedding

After periods of relatively stable load shedding schedules, Eskom has escalated rolling blackouts on Wednesday.

The power utility cited a delayed return to service of some generation units forcing the company to implement Stage 2 load shedding during the day between 7:00 and 16:00, while Stage 3 remains in the evening.

“This is the first time since 6 June that the utility is implementing rotational power cuts during the day on a weekday. Eskom’s last detailed statement on Sunday showed an energy availability factor of 56% of installed capacity due to breakdowns amounting to 16,524MW, while a further 4,376 was offline due to planned maintenance,” reported Absa in its latest morning sheet.


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