By Paul Makube, Senior Agricultural Economist, FNB Commercial

Governments globally are bound to respond to high food price pressures and devise interventions in line with what policy can permit. However, it is important to recognise that SA operates in an open global market where developments elsewhere such as droughts, floods, and trade restrictions have a huge influence on price direction on the local market. For example, the outbreak of the Russia-Ukraine war interrupted markets and caused a surge in agriculture commodity prices early in 2022 before the implementation of the Black Sea Grain Initiative Deal (BSGI) that ensured a safe passage of agriculture cargo from Ukraine to world market. This affected fertilizer, wheat, maize, and sunflower exports of which the countries are significant world exporters of these commodities. We also saw India imposing an export ban on rice and recently indicated it would do so on sugar due to inclement weather.

Nonetheless, Agriculture commodity prices then started easing and then fell sharply in 2023 as measured by the United Nation’s Food and Agriculture Organization (FAO) following the implementation of the BSGI deal. The FAO food price inflation update for July showed global food prices still in negative territory for the nineth consecutive month in July 2023 at -11.8% y/y.

In contrast, SA’s food inflation remained sticky on the upside for the better part of 2023 before easing from a double-digit high of 14.4% y/y in March to 10% y/y in July 2023. This is despite bumper harvests of both grain and oilseed crops and horticulture crops. The harvest of the country’s main staple, maize, is estimated at a record high of 16.41 million tons and so is the wheat crop at 2.14 million tons which is 1.5% higher y/y. So, the cost pressures across the agriculture value chain were mainly domestic issues that impeded trade such as heavy or extended loadshedding that forced farmers and processors of food commodities to build energy capacity at huge costs and running generators for extended periods due to the intermittent electricity supply.

Intensive agriculture operations such as chicken, pork, abattoirs, and storage facilities for all fresh produce require electricity 24/7 and frequent outages impact on production schedules, quality, and shelve life which may result in significant losses and bankruptcy. The other cost pressures emanated from poor and dilapidated road infrastructure which causes damages to vehicles, delivery delays, and long distances covered as drivers seek better alternative routes to markets.

A logistics infrastructure strategy implemented with the utmost urgency will go a long way in alleviating pressure on the consumers as performance at agriculture levels remains solid.

No single solution will resolve the problem of the high food prices and the indigent having limited access to food especially in an environment of slow economic growth and rampant unemployment.