The Bureau for Food and Agricultural Policy (BFAP) has, in its latest brief report, ‘Food price outlook for Quarter 2 2020 and beyond’, warned that food prices in South Africa are set to rise during this, second, quarter of the year. The country’s staple foods – maize, wheat and rice – would not be exempt from this trend. Lower-income consumers could be forced to reduce both the diversity and the amount of the foods that they eat.

“[A]s with every other aspect of social and economic life in the time of [the] Covid-19 [pandemic], food inflation projections for the second quarter of 2020 and beyond have just become much more difficult,” the BFAP points out. Many countries have gone into lockdown to contain the disease, disrupting international supply chains. South Africa’s credit rating has been reduced to ‘junk’ status. And that has helped drive a rapid weakening of the South African rand against other currencies. These factors will, the bureau affirms, be the main factors influencing food prices for the rest of this year.

What is known is that, since March 1, the rand has dropped by 17% against the dollar. From March 2019 the annual depreciation has been 29% (based on the rand:dollar exchange rate on April 2 of R18.49:$1.00). And rapid depreciation of exchange rates causes food inflation to rise. However, empirical research indicates that there is a lag of about two months between an exchange rate ‘shock’ and the onset of accelerated food inflation. Also, a 10% decline of the rand against the dollar usually results in a rise in the consumer food inflation index of 3.1. But these calculations are based on events which took place over a longer period than current events, and without the present massive disruptions in supply and demand. As a result, the actual increase in food price inflation is difficult to estimate.

“At food inflation rates for February 2020, this presents a possible scenario where food inflation could reach levels close to 10% over the coming months,” cautions the bureau. However, consumer confidence is at its lowest level since Cyril Ramaphosa became President. And consumer confidence has, in fact, been low since 2015; the current national lockdown is increasing the pressure on consumers because of the concomitant economic downturn and job losses.

“Consumers find themselves under persistent pressure, which could ultimately lead into a limited capacity to absorb significant future price increases,” notes the BFAP. “Thus, it is unlikely that the full effect of the depreciation of the rand can be passed through to consumers.”

Those food products through which South Africa is well integrated into global markets will experience “significant cost-price price increases,” it predicts. “In this regard, the staples complex in South Africa (maize, wheat, rice) might exhibit inflation rates in excess of general inflation rates. Based on the increase in the world rice price and the depreciation of the exchange rate over the past month, for example, the South African import parity price for rice has increased by more than 30%.”

Exchange rate depreciation also drove up wheat prices (in absolute terms) by a little more than 11% between March 2 and April 2. However, the BFAP expects that bread prices will rise by only between 2% and 3% during the next few months (because of the “relatively small cost equivalent share of wheat in bread”).

Also between March 2 and April 2, the average price of white maize jumped by 22% (also in absolute terms). Consequently, the BFAP forecasts an increase in maize meal prices of some 12% during the next four months.

“Anticipated price increases in bread and rice, in particular, would most likely enlarge the affordability gap between maize meal and alternative staples over the next few months,” concludes the bureau. “In the coming months the appeal of maize meal as the most affordable staple will most likely increase when [consumers are] faced with high rice prices in particular.”