By Wandile Sihlobo
The damaging effects of persistent dryness and heatwave in South Africa’s summer crop growing regions have raised concerns about a possible rise in consumer food inflation in the coming months. With South Africa's food price inflation averaging 11% in 2023 (from 9.5% in 2022, 6.5% in 2021, and 4.8% in 2020)¹, which was relatively high compared with recent periods, talk of further upside pressure in inflation comes as an unwelcome development.
However, the underlying drivers of the increase in food inflation in the past two years were mainly the international agricultural commodity prices and, to a much lesser extent, idiosyncratic domestic factors.
Still, towards the latter part of 2023, local factors such as animal diseases, weaker domestic currency, and loadshedding-related costs were some of the key drivers of food inflation.
The drought in South America, China's strong demand for grains and oilseed, rising shipping costs, higher energy prices, and the Russia-Ukraine war were some of the factors that were behind the higher global agricultural producer prices, which in turn, boosted the domestic prices, and thus leading to relatively elevated consumer food price inflation in 2022 and 2023.
Also worth noting is that South African food manufacturers had to absorb some of the increases and did not pass on the full increases to consumers who were already under pressure because of weak economic conditions and higher unemployment in the country. For example, in 2022, while consumer food inflation averaged 9.5%, the produce price inflation for agricultural products was 15.0%, and the food manufacturers inflation was 12.3%. This means manufacturers did not pass on the total costs to consumers, contrary to what some regulators have argued.