Food security warning for households in South Africa

While overall inflation and food inflation have come down significantly in South Africa, prices are still higher relative to income, leading to pricing pressure and major risks to food security for many households.

This is one of the key findings of the latest edition of the Competition Commission’s Essential Food Pricing Monitoring (EFPM) Report, which has drawn mixed reactions.

The EFPM report, which tracks essential food prices throughout the value chains of selected essential food items, said that “although both overall inflation and food inflation have eased, food security remains a serious risk for consumers as price levels remain high relative to consumer income.”

The report by senior economists Khalirendwe Ranenyeni and Kagiso Zwane from the commission’s economic research bureau outlined that there are positive signs of easing food cost pressures in the economy.

They attribute these changes to the relaxation of load shedding, a strengthening Rand against the US dollar, and decreasing fuel prices.

However, they note that while cost pressures are softening, this has not yet translated into lower prices across several key food value chains.

“The Commission has observed that prices remain high and are increasing at a rate that is unaffordable for low-income households,” said the Competition Commission.

For instance, despite a decline in farmgate prices for wheat, the Commission said the producer price of brown bread has increased during the reporting period.

Similarly, although the average producer price of cooking oil has dropped sharply, retail prices have not followed suit, leading to a producer-to-retail spread for cooking oil that exceeds pre-war levels seen before the Ukraine conflict.

The report also examines the effects of the avian flu outbreak, which continues to be felt by consumers.

“The producer and retail prices for eggs remain considerably above pre-avian flu outbreak levels; however, retailers have not fully passed on the higher producer prices.

“This is likely because producers and not retailers carried the brunt cost of containing the outbreaks as well as any associated financial losses,” said the Commission.

A week ago, the South African Poultry Association and the FairPlay Movement reiterated their call to exempt specific chicken products from VAT to provide relief for low-income households and boost the poultry industry.

Izaak Breitenbach, CEO of the association, told the Daily Maverick that avian influenza cost the industry more than R9.5-billion.

Additionally, the Commission said that speculative trading in agricultural commodities has previously led to price increases that do not align with supply and demand fundamentals – which has been on the radar of their work.

“As food markets have become increasingly financialised, there is a risk that the speculative actions of financial market actors may result in higher prices throughout the value chain,” said Ranenyeni and Zwane.

They said that observations from the United Nations Conference on Trade and Development (UNCTAD) indicate that major global food commodity traders have seen substantial profit increases, potentially driven by speculative practices.

However, the latest analysis in the EFPM Report finds no evidence that speculation has inflated prices for white maize, wheat, or sunflower seeds in the local market.

“Therefore, prices may be reflective of market fundamentals, rather than the effects of speculative trading – as an open economy, global prices are reflected in the local market [and] accordingly, the tendency towards more speculative behaviour in global markets may filter into the local market,” said the Commission.

“This calls for vigilance and coordination on the part of policymakers, especially as global food markets continue to weather multiple and simultaneous disruptions,” said the economists.

The Commission said that it plans to enhance its research into global commodity traders and their effects on local prices.

It added that ongoing and further monitoring of essential food prices is important for ensuring transparency regarding the profit margins of staples producers and retailers “so that consumers are not harmed by unjustifiable increases.”

Response

In response to the Competition Commission’s comments about South African food prices, Chief Economist of the Agricultural Business Chamber (Agbiz) of South Africa Wandile Sihlobo wrote that “South African households are generally under pressure, and the relatively higher food prices add to the difficulty.”

However, he said that “still, it is wrong to accuse anyone of the higher food prices.”

Sihlobo said that the factors driving up costs “are clear—amongst many drivers, there were droughts, which led to a poor harvest, reasonably higher fuel prices for much of this year, and higher labour costs.”

“The commodity prices of most agricultural commodity prices remain elevated, mirroring the effects of these factors,” he added.

“In a way, one can argue that the food prices at the retail level don’t mirror the extent of increases we see at the farm level, which means retailers may have absorbed costs to an extent.

“Most importantly, even when agricultural prices start to ease – there typically is a lag of about 3-6 months before one sees those reflected on retail products,” addedthe agricultural economist.

Sihlobe recently outlined in an interview with FoodForMzansi that the country’s agricultural sector is slowly regaining its footing. While challenges persist, there are signs of optimism that cannot be ignored, which would trickle down into food pricing.

He said that the Agbiz/IDC Agribusiness Confidence Index – a sentiment indicator for business conditions in the agriculture sector – has shown a notable improvement, rising by 10 points in the third quarter of 2024.

“While the index still sits below the neutral 50-point mark at 48, the fact that it’s climbed 10 points is huge. It signals a positive shift and shows things are moving in the right direction.”

He also notes that the Agbiz/IDC Agribusiness Confidence Index often serves as a leading indicator for agricultural growth, suggesting we can anticipate improved farming output for the remainder of the year.

While the sector shows signs of improvement, Sihlobo remains realistic about the challenges ahead.

He said that we cannot rely only on favorable weather or lower input costs, but for sustainable long-term growth, the government needs to address major issues such as infrastructure, animal diseases, and expanding export markets.

Without these initiatives, there will only really be short-term solutions.

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