Bad news about food prices in South Africa

Food prices in South Africa are set to rise steadily in the coming decade as erratic weather patterns threaten the production of maize and wheat, which account for nearly half of the country’s food consumption. 

This is feedback from PwC’s June South Africa Economic Outlook, which detailed the potential effects of climate change on the production of nine key commodities, from iron ore to rice. 

Agricultural commodities are most significantly at risk from erratic weather patterns due to their role in their production. 

These soft commodities are the primary food source for billions of people worldwide and are also used for animal feed to produce meat and dairy. 

Three of the most important crops are maize, wheat and rice, which combined account for 90% of all cereal crops grown globally. 

Grain-dependent products like cereals, meat and dairy account for 70% of South Africa’s food budget and 10% of total household spending. 

Furthermore, South Africa is a large exporter of these commodities, making them a vital source of foreign exchange revenue. A decline in the production of maize and wheat will raise food prices and harm the country’s balance of trade. 

By PwC’s estimation, nearly a quarter of all maise production and 35% of wheat production are at significant risk of heat stress by 2035. 

South Africa uses these soft commodities to produce food products and feed animals, which in turn provide other food products. 

According to Statistics South Africa, bread and cereals account for 20% of South Africans’ food spending basket. 

In turn, meat (35%) and dairy (15%) products – produced from animals fed in part with grains – account for 50% of consumer expenditure. 

Together, these grain-dependent products account for 70% of South Africans’ food budget. If not locally farmed, these commodities are imported. 

However, whether sourced locally or abroad, PwC’s drought and heat risk forecasts point to a higher cost and constrained supply associated with these cereals in the coming years. 

This will result in higher prices being passed onto the consumer for these commodities, driving up food inflation and, ultimately, headline inflation. It may also result in food shortages. 

South Africa’s unique challenges regarding infrastructure collapse compound the potential for shortages and price increases. 

BDO South Africa’s director, Anita Calitz, and senior audit manager Adele Botes said the deterioration in the supply of water poses a significant threat to the country’s food supply. 

“If we remain on our current trajectory, the next 2 to 10 years could see even more severe water shortages. The risk of ‘Day Zero’ becomes more real with each passing day, as do the prospects of increased water restrictions and compromised water quality,” they warned.  

Water is a universal economic input, so businesses could face operational disruptions, increased costs, and potential revenue losses. 

In particular, the agriculture sector, which consumes 70% of freshwater, could also suffer, leading to food shortages. 

Another impact will be a rise in the price of food, which may not result in an actual shortage of food but in South Africans being unable to purchase it. 

The increased likelihood of water shortages will compound the severe disruptions load-shedding has caused in the agriculture and fast-moving consumer goods sectors in recent years. 

While South Africa’s power supply has greatly improved in recent months, there are still sporadic outages due to inadequate municipal distribution infrastructure. 

This results in some areas of the country being without electricity for an extended period. Unexpected and random outages tend to be more disruptive. 

Unforeseen power cuts affect irrigation schedules, heating, fruit and wine processing, milling, bakeries, abattoirs, cold chain logistics and exports. 

Extreme bouts of rotational power cuts and sporadic changes to the load-shedding stages have, in certain instances, resulted in farms and processors having to discard their produce, with farmers reporting losses of between 30% and 50%.